# Accounts Receivable Questions

Q:

What is accounts receivable aging?

An accounts receivable aging is a report that lists unpaid customer invoices and unused credit memos by date ranges. A typical aging report lists invoices in 30-day "buckets," where the left-most column contains all invoices that are 30 days old or less, the next column contains invoices that are 31-60 days old, the next column contains invoices that are 61-90 days old, and the final column contains all older invoices. The report is sorted by customer name, with all invoices for each customer itemized directly below the customer name, usually sorted by either invoice number or invoice date. A sample report follows, though without the individual invoice detail that is usually found in such a report:

Customer Name

Total A/R 0-30

Days 31-60

Days 61-90

Days 90+

Days

Abercrombie $15,000$10,000 $5,000 Bufford Inc. 29,000 20,000 9,000 Chesterton Co. 83,000 47,000 21,000 12,000 3,000 Denver Brothers 8,000 8,000 Totals$135,000 $57,000$46,000 $21,000$11,000

If the report is generated by an accounting software system (which is usually the case), then you can usually reconfigure the report for different date ranges. For example, if your payment terms are net 15 days, then the date range in the left-most column should only be for the first 15 days. This drops 16-day old invoices into the second column, which highlights that they are now overdue for payment.

The report primarily contains invoices, but it may also contain credit memos that have not been used by customers, or which have not yet been matched against an unpaid invoice.

The aging report is the primary tool used by collections personnel to determine which invoices are overdue for payment, and which therefore require them to contact customers. Given its use as a collection tool, the report may be configured to also contain contact information for each customer.

The aging report is also used as a tool for estimating potential bad debts, which are then used to revise the allowance for doubtful accounts. The usual method for doing so is to derive the historical percentage of invoice dollar amounts in each date range that usually become a bad debt, and apply these percentages to the column totals in the most recent aging report.

An additional use of the aging report is by the credit department, which can view the current payment status of any outstanding invoices to see if customer credit limits should be changed. This is not an ideal use of the report, since the credit department should also review invoices that have already been paid in the recent past. Nonetheless, the report does give a good indication of the near-term financial situation of customers.

2033
Q:

'Equity schemes managed strong NAV gains, which boost their assets' was a news in some financial newspapers. What is the full form of the term NAV as used in above head lines ?

 A) Nil Accounting Variation B) New Asset Venture C) Net Accounting Venture D) Net Asset Value

Explanation:

Net asset value (NAV) is value per share of a mutual fund or an exchange-traded fund (ETF) on a specific date or time. It  is the value of an entity's assets minus the value of its liabilities, often in relation to open-end or mutual funds, since shares of such funds registered with the U.S. Securities and Exchange Commission are redeemed at their net asset value.

2 1848
Q:

What is a bad debt provision?

A bad debt provision is a reserve that you build up over time against the future recognition of specific accounts receivable as being uncollectible. Thus, if a company has issued invoices for a total of $1 million to its customers in a given month, and has a historical experience of 5% bad debts on its billings, it would be justified in creating a bad debt provision for$50,000 (which is 5% of \$1 million).

It is impossible to know the exact amount of bad debts that will occur at some point in the future from the current account receivable, so it is entirely normal to continually readjust the bad debt provision, as you gain a greater understanding of how collectible the accounts receivable really are. These adjustments may lead to future increases or decreases in the bad debt expense. Since these adjustments can be viewed as a means of manipulating a company's reported profits, you should fully document your reasons for making the adjustments.

You would create a bad debt provision with a debit to the bad debt expense account, and a credit to the bad debt provision account. The bad debt provision account is an accounts receivable contra account, which means that it contains a balance that is the reverse of the normal debit balance found in the associated accounts receivable account. Later, when a specific invoice is found to be uncollectible, you create a credit memo in the accounting software for the amount of the invoice that is uncollectible. The credit memo reduces the bad debt provision account with a debit, and reduces the accounts receivable account with a credit. Thus, the initial creation of the bad debt provision creates an expense, while the later reduction of the bad debt provision against the accounts receivable balance is merely a reduction in offsetting accounts on the balance sheet, with no further impact on the income statement.

The reason for a bad debt provision is that, under the matching principle, you should match revenues with related expenses in the same accounting period. Doing so shows the full effect of a billed sale transaction in a single accounting period. If you were to not use a bad debt provision, and instead used the direct write off method to only charge bad debts to expense when you were certain that a specific invoice was not collectible, then the charge to expense might be many months later than the initial revenue recognition associated with the billing. Thus, under the direct write off method, profits will be too high in the period of the billing to the customer, and too low in the later period when you finally charge some portion or all of an invoice to the bad debt expense.

1845
Q:

What is the Auto Invoice? What are the setup Steps for Auto Invoice?

A powerful tool to import and validate transaction data from other financial systems and create invoices , debit memos , credit memos and on-account credits

Setup steps:

1. Define the line ordering rules

2. Define the grouping rules - attache the line ordering rules to the grouping rules

1792
Q:

Key Difference between Indian accounting standards and international accounting standards is:

In international accounting LIFO and extraordinary items are prohibited

In international accounting, proposed dividend entry is made in the Year in which it is declared, but in Indian Accounting Standards Proposed Divided entry is passed in the year for which dividend is declared. e.g. Dividend for 09-10 declared in AGM on 14 Sept 2010, Financial (Accounting) Year = 2009-10

In Indian Accounting entry would be passed in 2009-10 Accounts books, but in International Accounting entry would be passed in the year 2010-11 Accounts books.

1782
Q:

What are the Golden Rules Of Accounting ?

Golden rules of accounting convert complex book-keeping rules into a set of well defined principles which can be easily studied and applied.

Real accounts involve machinery, land and building etc... Similarly when you credit what goes out, you are reducing the account balance when a tangible asset goes out of the organization. Debit All Expenses And Losses, Credit All Incomes And Gains. This rule is applied when the account in question is a nominal account.

Personal-Account

---Credit the Giver

Real-Account

---Debit what comes in

---Credit what goes out

Nominal-Account

---Debit all expenses and losses

---Credit all income and gains

1726
Q:

What is the difference between finance and accounts? most of the companies having a different section like finance and accounts. why they aren't had only single section neither finance nor accounts?

Finance:It is the branch of economics that studies the management of money and other assets.In simpler terms it can be defined as the commercial activity of providing funds and capital.It addresses questions like -- what funds are required by the org & How they can be raised &  How they have to be allocated etc.

Accounts: It is the occupation of maintaining and auditing records and preparing financial reports for a business. Accounts provides quantitative information about finances. It addresses issues like what amount of funds have been allocated to various activities, how the book-keeping is being done etc.

Both functions are distinct but complimentary to each other.

Finance and accounts are highly specilized and distinct areas and hence most organizations have seperate sections of finance and accounts.

1723
Q:

The largest component of National Income in India is ____ ?

 A) Service Sector B) Industrial Sector C) Agriculture Sector D) Trade Sector