Accounts receivable

Money to carry accounts receivable (i.e., credit extended to customers) less accounts payable (i.e., credit extended by suppliers)... 

Finance. Cost accounting, budget control, payroU, records, accounts payable, accounts receivable, capital equipment control, taxes, customs, iasurance, loss control, and management information are all part of the finance function. 

Use of Results. Sales analysis data are used ia many ways by company management. The results are most useful ia production planning, particularly if grade differences appear to be ia the offing, and ia assuting that adequate suppHes are available for sales. Inventory control, raw material procurement, technical service requirements, and trends ia accounts receivable are beneficiaries of good sales analyses. 

The working capital includes the cost of inventories, such as raw materials, materials-in-process, products, etc as well as suppHes, accounts receivable less accounts payable, prepaid expenses, other cash needs such as payroll, and some start-up expenses, eg, materials and wages. Typical inventories can be taken as one month s supply of raw materials, products, and materials-in-process. The materials-in-process can be valued at one month s sales. Other operating cash can be estimated as the actual cash need for one month. 

Liquid assets are those that can be realized almost immediately, such as cash, accounts receivable, and marketable securities. Although inventories are current assets, they must not be regarded as hquid assets because they cannot usually be converted into cash without winding up the business. 

Similarly good management practice is to hold accounts receivable at a low level and to have a high accounts-receivable-turnover ratio, as given by... 

An accounts-receivable-turnover ratio of 12 is considered fairly good for a manufacturing company This implies an average collection period of about 1 month. The price obtained for the goods should include an allowance for interest (otherwise obtainable) on the money tied up for such a period. 

Consider the operations of a service company that markets and delivers seminars. Different aspects of this business, and hence its software requirements, can be described separately allocation of instructors and facilities to a seminar, on-time production of seminar materials for delivery, trend analysis for targeted marketing of seminars, invoicing and accounts receivable, and so on. 

After installation, the total cost of equipment (direct permanent investment) is 6,557,000. Allowing 18% for the cost of contingencies and contractor fees ( 1,180,300), the total depreciable capital is estimated to be 7,737,000. Ten percent of this is assumed to cover the cost of startup, 773,700, giving a total permanent investment of 8,511,000. Working capital is estimated to cover accounts receivable that is, the sales of 30 days production of wafers (41,800 wafers), assumed to sell for 260/wafer, giving 10,868,000. Together with a 2-day inventory of wafers, valued at the product price, the total working capital is 11,520,000. Hence, the total capital investment is 20,031,000. 

We then focused on aggressive accrual of income. We looked at who was growing accounts receivable materially faster than sales. This test included a materiality hurdle so that companies would not be eliminated on immaterial numbers. 

For the 106 companies entering Test 4, we compared their year-by-year growth in both accounts receivable and sales for the six-year time-period and if accounts receivable grew on average 10% or more than sales, we then looked at the size or materiality of 2002 accounts receivable relative to 2002 sales. 

For the materiality standard, we chose 5 % - that is, the total amount of accounts receivable must be greater than 5% of sales for the test to apply. The impact of this materiality test was to retain some large companies (e.g. grocery stores) in our model whose business model had non-material amounts of accounts receivable but that had greater than 10% growth rate of accounts receivable compared to sales growth for 1997-2002. 

Assets are classified as current, fixed, or intangibles. Current assets include cash, cash equivalents, marketable securities, accounts receivable, inventories, and prepaid expenses. Cash and cash equivalents are those items that can be easily converted to cash. Marketable securities are securities that a company holds that also may be converted to cash. Accounts receivable are the amounts due a company from customers from material that has been delivered but has not been collected as yet. Customers are given 30, 60, or 90 days in which to pay however, some customers fail to pay bills on time or may not be able to pay at all. An allowance is made for doubtful accounts. The amount is deducted from the accounts receivables. Inventories include the cost of raw materials, goods in process, and product on hand. Prepaid expenses include insurance premiums paid, charges for leased equipment, and charges for advertising that are paid prior to the receipt of the benefit from these items. The sum of all the above items is the total current assets. The term current refers to the fact that these assets are easily converted within a year, or more hkely in a shorter time, say, 90 days. 

Accounts receivable Credit extended to customers, usually on a 30-day basis. Cash is set aside to take care of the probabihty that some customers may not pay their bills. 

Working capital In the accounting sense, the current assets minus the current liabilities. It consists of the total amount of money invested in raw materials, supplies, goods in process, product inventories, accounts receivable, and cash minus those liabilities due within 1 year. 

The accounting definition of woridng capital is total current assets minus total current liabilities. This information can be found from the balance sheet. Current assets consist chiefly of cash, marketable securities, accounts receivable, and inventories current liabilities include accounts payable, short-term debts, and the part of the long-term debt currently due. The accounting definition is in terms of the entire company. 

Assets are items of value possessed by the company or commitments by others to pay the company some amount. This latter quantity is called an account receivable because it is an amount that the company expects to receive in the future under current obligations. 

In a business or organization, the CFO is the individual who is responsible for the financial decisions and investments made by the company. In a hospital or health system, the CFO is likely to have several departments and functions reporting to him or her, including general accounting, accounts receivable and accounts payable, payroll, budgeting, and finance. 

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