ACCOUNT RECEIVABLES by

Bojan
CHEAT SHEET Radojicic

5 KEY FACTS ACCOUNTING 4 KEY RATIOS

Recognized and being measured by IFRS 9 financial Accounts Receivable Turnover

Accounts receivable (AR) refers to the instrument or local GAAP Ratio:
1 amount of money owed to a business Formula: Net Credit Sales / Average
by its customers or clients for goods Accounts Receivable
sold or services rendered on credit. Transaction Debit Credit This ratio measures how efficiently a
company collects payments from its
Sales (credit) Accounts receivable Revenue from sales
When calculating cash flow by indirect customers. A low turnover ratio can
2 method, any increase in AR decrease Cash collection from customers Cash Accounts receivable indicate inefficiencies in collecting
CF, while decrease in AR increase CF receivables, potentially leading to
Estimation of bad debt Bad debt costs Impairment of AR
overdue accounts.
Estimation of bad debt reversal Impairment of AR Bad debt costs
3 Important for sales department and
credit controlling efficiency. Bad debt write off Impairment of AR Accounts receivable Days Sales Outstanding (DSO):
Formula: (Average Accounts Receivable /
Minority amounts write offs Write off costs Accounts receivable Net Credit Sales) * Number of Days in
Significantly impacts on net working
4 capital.
Interest on overdue accounts Accounts Receivable Interest Income the Period
DSO calculates the average number of
Discounts allowed to Discounts (Revenue
customers from sales) Accounts receivable days it takes to collect payment after a
Bad debt and overdue amounts can
sale is made. Lower DSO suggests
5 lead to the company loss recognized Customer returns goods o Sales returns Accounts receivable efficient collections.
in P&L even bankruptcy.
Account receivable Account receivable
Sell receivables (new) (sold) + Gains Bad Debt Ratio:
Formula: Bad Debt Expense / Net Credit
Sales
AR & FINANCIAL STATEMENTS This ratio assesses the percentage of
sales that result in bad debts. It indicates
the credit risk associated with sales.

Balance sheet 2022 2023 Cash flow statement 2023 Overdue ratio :
Fixed assets 400 600 Net income 1,550 Formula Overdue AR / Total AR
Inventories 200 300 Changes in AR (50) This ratio calculates the proportion of
Changes in inventories (100) accounts that are overdue, giving a clear
Account Receivable 450 500 4 view of the extent of delinquent
Cash 375 1,600 CF from operating activities 1,775
payments.
Any collection of cash decreases CF from investing activities (300)
Current assets 1,025 2,400
AR and increases in cash. Also, CF from financing activities (250)
Total assets
Equity
1,425 3,000
500 2,050
any increase in AR decreases
cash flow
Total cash flow 1,225 AR CHECKLIST
Cash at the beginning of
Current liabilities 425 700 period 375
AR sub-legder reconciled with AR
Total E&L 1,425 3,000 Cash at the end of period 1,600
1
general ledger accounts.
Sales to customers AR balances reconciled with debtors
generate revenues which 1 Net income impacts cash flows
when calculating by indirect 33 (at least 75% balance is confirmed).
means the increase in Profit and Loss Account 2022 2023
asset, this assets is AR. method
Revenue 10,000 11,000 Review aging list of AR, check status
AR belongs to the current of payment after balance sheet date.
assets in the balance COGS 6,200 6,800
sheet Gross profit 3,800 4,200 Analyze financial conditions and
Overhead costs 2,000 2,200 Revenues impact liquidity at overdue AR.
22 net income
EBITDA 1,800 2,000
Perform AR impairment test and post
EBT 1,660 1,860
bad debt.
Tax 280 310
Net income 1,380 1,550 Don’t forget to take AR under
litigations into account.

Perform bad debt reversal from

pervious period if identified.

8 STEPS FOR AR VALUATION AND IMPAIRMENT TEST Unrealized FX posted on AR GL

accounts in different currencies.

1 Pre-valuation step 2 List customers per

balance 3 List customers
balance aging 4 Set a criterion for
impairment FORECAST AR
Reconciliation b/t general leger Overdue days; Overdue reasons;
Payment history and experience;
AR accounts and AR sub-legder
Reconciliation (balance Liquidity of customer (e.g. bank 1 Calculate and analyze historical
DSO (DSO = Average AR /
confirmations) with customers account blockade, bankrupt);
Collection after balance sheet date; Revenues x 365
(debtors)
Financial conditions of customer .

2 Make forecast of revenues and

5 Weight your criteria 6 Score the criteria
from 1-5
7 Apply total score to
the customer list 8 Decide the amount of
the impairment
best estimate of related DSO

Set the rule in your policy: e.g. Each

balance above score of 3 should be
100% impaired. Or each balance
3 Calculate projected AR by
formula : AR = Revenues / (365
above score of 2.5 - 50% impaired, / DSO)
above 4 – 100%.

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