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    The Budgeting of Account Receivable

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    Ananda Riski
    The document discusses receivables and factors that affect accounts receivable budgets. It defines receivables as debts owed by customers for goods and services that have been delivered but not yet paid for. It identifies the main types of receivables as accounts, notes, and other receivables. It then lists several key factors that influence accounts receivable budgets, including the volume of credit sales, credit terms and standards, price discounts offered, credit limits, and collection policies. The document concludes by providing an example of how to prepare an accounts receivable budget in multiple steps.

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    The Budgeting of Account Receivable

    Uploaded by

    Ananda Riski
    142 views5 pages
    The document discusses receivables and factors that affect accounts receivable budgets. It defines receivables as debts owed by customers for goods and services that have been delivered but not yet paid for. It identifies the main types of receivables as accounts, notes, and other receivables. It then lists several key factors that influence accounts receivable budgets, including the volume of credit sales, credit terms and standards, price discounts offered, credit limits, and collection policies. The document concludes by providing an example of how to prepare an accounts receivable budget in multiple steps.

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    The document discusses receivables and factors that affect accounts receivable budgets. It defines receivables as debts owed by customers for goods and services that have been delivered but not yet paid for. It identifies the main types of receivables as accounts, notes, and other receivables. It then lists several key factors that influence accounts receivable budgets, including the volume of credit sales, credit terms and standards, price discounts offered, credit limits, and collection policies. The document concludes by providing an example of how to prepare an accounts receivable budget in multiple steps.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    142 views5 pages

    The Budgeting of Account Receivable

    Uploaded by

    Ananda Riski
    The document discusses receivables and factors that affect accounts receivable budgets. It defines receivables as debts owed by customers for goods and services that have been delivered but not yet paid for. It identifies the main types of receivables as accounts, notes, and other receivables. It then lists several key factors that influence accounts receivable budgets, including the volume of credit sales, credit terms and standards, price discounts offered, credit limits, and collection policies. The document concludes by providing an example of how to prepare an accounts receivable budget in multiple steps.

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    Name : Ananda Riski Oktavianto

    Student Number : 195020207111078

    Receivables Definition
    Receivables, also referred to as accounts receivable, are debts owed to a company by its
    customers for goods or services that have been delivered or used but not yet paid for.
    Types of Account Receivable
    Receivables can be classified as accounts receivables, notes receivable and other receivables (
    loans, settlement amounts due for non- current asset sales, rent receivable, term deposits).
    Other receivables can be divided according to whether they are expected to be received within
    the current accounting period or 12 months (current receivables), or received greater than 12
    months ( non-current receivables).
    ● Account Receivables
    It is the amounts that customers owe the company for normal credit purchases. Since
    accounts receivable are generally collected within two months of the sale, they are
    considered a current asset. Accounts receivable usually appear on balance sheets
    below short-term investments and above inventory.
    ● Notes Receivables
    It is amounts owed to the company by customers or others who have signed formal
    promissory notes in acknowledgment of their debts. Promissory notes strengthen a
    company’s legal claim against those who fail to pay as promised. The maturity date of a
    note determines whether it is placed with current assets or long-term assets on the
    balance sheet. Notes that are due in one year or less are considered current assets,
    while notes that are due in more than one year are considered long-term assets.
    ● Other Receivables
    Accounts receivable and notes receivable that result from company sales are called
    trade receivables, but there are other types of receivables as well. For example, interest
    revenue from notes or other interest-bearing assets is accrued at the end of each
    accounting period and placed in an account named interest receivable. Wage advances,
    formal loans to employees, or loans to other companies create other types of
    receivables. If significant, these nontrade receivables are usually listed in separate
    categories on the balance sheet because each type of non trade receivable has distinct
    risk factors and liquidity characteristics.
    Benefits of Account Receivables
    ● It is an effort to increase sales turnover, so that profits can also be increased.
    ● In certain types of business, long-term credit can create certain benefits for the
    company.
    ● Can strengthen trade relations between the company and its relations.
    Factors That Affects Account Receivables
    ● Volume of goods sold on credit
    When the volumes of goods that are sold on credit is bigger than cash, it can makes the
    account receivable bigger and so forth.
    ● Credit standard
    The determination of credit standard affects the size of account receivables.

    Factors Affecting Budget Accounts Receivable

    1. The volume of goods sold on credit


    The volume of goods sold on credit is greater than cash, which can further increase the budget
    in accounts receivable, and vice versa. For example: a month of selling Rp. 100,000 of goods
    with the condition that 10% is paid in cash and 90% is made on credit. Therefore, trade
    receivables that are embedded 90% x Rp.100,000 = Rp. 90,000. The volume of goods sold on
    credit is smaller than cash, which can reduce the budget in accounts receivable. For example: a
    month selling goods for Rp. 100,000 on the condition that 90% is paid in cash and 10% is made
    on credit. Thus, trade receivables are embedded 10% x Rp.100,000 = Rp.10,000. In conclusion,
    the greater the trade receivables that are embedded, the greater the risk in the accounts
    receivable.

    2. Credit standards
    The looser the credit standard provided, the greater the embedded receivables and the risk of
    loss of accounts receivable. The 5C and 3S analyzes were ignored. On the other hand, the
    tighter and more extreme the credit standard is given, the smaller the embedded receivables
    and losses, because the debtor is strictly selected.

    3. Term of credit
    The credit period affects the size of the embedded trade receivables. The longer the credit
    period, the greater the embedded trade receivables, and vice versa. Long credit terms can
    increase the volume of goods or services sold, in addition to increasing trade receivables. For
    example, the payment terms are 10% in monthly installments, 20% in two months, 20% in three
    months, 20% in four months, 15% in five months, and 15% in six months

    Accounts receivable for the month the goods were sold = IDR 100,000
    The first month's receivables are 90% x IDR 100,000 = IDR 90,000
    Second month's receivables 70% x IDR 100,000 = IDR 70,000
    Accounts receivable third month 50% x IDR 100,000 = IDR 50,000
    Accounts receivable fourth month 30% x IDR 100,000 = IDR 30,000
    Accounts receivable fifth month 15% x IDR 100,000 = IDR 15,000
    Accounts receivable for the sixth month 0% x IDR 100,000 = IDR 0

    4. Giving deductions
    Giving large price cuts will reduce embedded trade receivables, and vice versa. Cash
    purchases with small price cuts will increase the embedded trade receivables. Example: Goods
    sold for IDR 100,000
    Cash purchases get a 10% discount of IDR 10,000
    The money that the buyer has to pay is Rp. 90,000
    Thus, sales in cash do not result in accounts receivable, while purchases on credit (without
    deductions) result in trade receivables of IDR 100,000.

    5. Credit restrictions
    Credit Limitation In a quantitative sense, namely with respect to the maximum credit limit
    (amount) to be extended. The higher the credit limit (ceiling), the greater the embedded trade
    receivables, and vice versa, the credit limit with the lower the credit limit, the smaller the
    embedded receivables,

    6. Accounts receivable collection policy


    Accounts receivable collection policies are more active, receivable collection policies can
    reduce embedded trade receivables but increase costs (expenses) compared to passive billing.
    An active collection policy for accounts receivable can reduce embedded trade receivables, on
    the other hand, a passive receivable collection policy can increase embedded trade receivables.
    An active collection policy for accounts receivable requires a large fee (expense) compared to
    an active collection policy. Expenses incurred in an active receivable collection policy include
    travel costs, telephone costs, mailing costs, accounts receivable administration costs, and
    others.

    H. Preparation of Accounts Receivable Budget


    As is the case with other budgets, for the accounts receivable budget there is also no standard
    form that must be used by the company. This means that each has the freedom to determine
    the shape and format, according to the circumstances of their respective companies. It is
    important to remember that the accounts receivable budget as a supporting budget for the
    balance sheet (balance sheet supporting budget) must be sufficiently systematic and detailed,
    so that it can function as a work guideline. , a work coordination tool, and as a work evaluation
    (supervision) tool. As an illustration, here is an example of a Budget Receivable, so that it can
    provide clearer steps.

    Example 1:
    Realization data and sales budget of PT Waja to Kaputing in the first quarter of 2010

    Realisasi Desember Rp 80.000,00

    Anggaran Januari Rp 85.000,00

    Februari Rp 90.000,00

    maret Rp 95.000,00

    With payment terms: 50% cash, 40% monthly credit, 10% two month credit, 1% estimated bad
    debts.
    The steps in preparing the accounts receivable budget include:
    1. Step I: Calculate the amount of accounts receivable
    2. Step II: Calculate the allowance for uncollectible accounts receivable
    3.Step III: Calculate the net trade receivables (as well as the trade receivables budget)

    General equation:
    Total net receivables = Total trade receivables - allowance for uncollectible accounts receivable
    write-off

    Step I: Calculate the amount of accounts receivable


    Bulan Jumlah

    Januari 10% x 80.000 + 50%


    x85.000 =
    50.500

    Februari 10% x 85.000 + 50% x 90.000 = 53.500

    Maret 10% x 90.000 + 50% x 95.000 = 56.500

    Step II: Calculate the allowance for uncollectible accounts receivable


    First: Calculate the estimated bad debts by month
    December: 1% x 80,000 = 800
    January: 1% x 85,000 = 850
    February: 1% x 90,000 = 900
    March: 1% x 95,000 = 950
    Second: Calculate the allowance for accounts receivable

    Reserve month x = estimated bad debts (PTT) month x + estimated PTT month x

    January: 800 + 850 = 1,650


    February: 850 + 900 = 1,750
    March: 900 + 950 = 1,850
    Step III: Calculate the net trade receivables (as well as the trade receivables budget)

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