Accounts Receivable Questions

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?

Answer

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.

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Q:

ETCS means

A) Electronic Tax Collected at Source B) Electric Tax Collected at Source
C) Enable Tax Collected at Source D) Electrical Tax Collected at Source
 
Answer & Explanation Answer: A) Electronic Tax Collected at Source

Explanation:

Tax Collected at Source (TCS) is income tax collected in India payable by the seller who collects in turn from the buyer and it is provided under section 206C of Income Tax Act, 1961 at the sale of some goods which are specified.

E - TCS  is the process of filing TCS returns through electronic media. It is necessary for government and corporate collectors to file TCS returns in its electronic form. Collectors (other than government) have the provision to file TCS returns in physical form or electronic form.

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Q:

How is a journal entry recorded?

Answer

A journal entry is recorded accourding to the rules of debit and credit.for example goods sold for Rs 50000 for cash ----to record this -- identify the accounts involved-- i.e.goods A/cand Cash A/cgoods is a real account and cash is also a real accountdebit and credit rule for Real accounts is DEBIT WHAT COMES IN CREDIT WHAT GOES OUT according to this--cash is coming to the organisation and goods is leaving from the organisation--Entry for this is Cash A/c Dr. 50000 to Goods A/c or Sales A/c 50000 ( For Cash Sales )

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Q:

What is an accrued receivable?

Answer

An accrued receivable is either a trade receivable or a non trade receivable for which a business has earned revenue, but for which it has not yet issued an invoice to the customer. You normally create an accrued receivable in either of the following scenarios:

* Milestone. A milestone has been reached in a contract with a customer, where you are clearly entitled to a specific, pre-defined amount, but the contract does not yet allow you to issue an invoice; or
* Services. The contract with the customer states that the customer will pay you for hours worked, rather than for a specific work product. For example, there may be 10 hours of work that will eventually be billed at a rate of $80 per hour, so you accrue the receivable for $800.

The journal entry to create an accrued receivable is a debit to an accounts receivable account, and a credit to the revenue account. It may be useful to create a unique general ledger account for accrued receivables, rather than using the main trade receivables account, in order to clearly show these transactions. In addition, you should set these journal entries to automatically reverse themselves in the next accounting period; you would then replace the accrual in the next period with the actual invoice (assuming that there is a billing event in the next period). If you are unable to create an invoice in the next period, then you should continue to accrue and reverse the revenue and accrued receivable in every period on a cumulative basis until you can eventually issue an invoice.

For example, ABC International has completed a milestone in a project to install a dam, though it is not allowed under the contract to issue an invoice more frequently than once a quarter. It therefore accrues revenue and a receivable of $50,000 at the end of January. The journal entry automatically reverses at the beginning of February. ABC then earns another $30,000 on the next project milestone in February, but is still contractually unable to issue an invoice. It therefore accrues revenue and a receivable of $80,000 in February. The journal entry automatically reverses at the beginning of March. ABC then earns another $70,000 on the next project milestone in March. It is allowed to issue a quarterly invoice at the end of March, so it issues an invoice for $150,000. By using accruals, ABC has recognized $50,000 of revenue and receivables in January, $30,000 in February, and $70,000 in March, rather than recognizing all $150,000 in March, when it issues an invoice to the customer.

You should not use accrued receivables if you cannot justify to an auditor that there is a clear obligation by the customer to pay the company for the amount of the accrued receivable. Otherwise, there is a presumption that the business has not yet reached the point where the customer has a clear obligation to pay. If you use accrued receivables, expect auditors to pay particular attention to their justification. For example, you should not accrue receivables in a case where a business is providing services under a fixed fee contract, and it earns revenue only when the entire project is complete and approved by the customer. Revenue has not really been earned prior to completion, so there should be no accrual prior to that point.

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Q:

Is it possible for a company to show positive cash flows but be in grave trouble ?

Answer

Absolutely. Two examples involve unsustainable improvements in working capital (a company is selling off inventory and delaying payables), and another example involves lack of revenues going forward in the pipeline.

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Q:

What is Trail Balance?

Answer

After posting the all accounts in the Ledger a statement is prepared to showing debit and credit balances.Debit balances must be tally with the Credit side balance is called trial balance


 

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Q:

How important does accounts receivable useful for small business and why?

Answer

 Accounts receivables help small businesses by providing quick-time period liquidity. Additionally continued sales on credit provide the  much-needed continuity for small companies.

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Q:

What do you mean by Credit Management under AR in Professional field?

Answer

Credit Management is the process of managing the outstanding receivables of the organistion as per the policies adopted by the organisation. Companies might the approach of categorising the B/R by their ageing and provision for the same would be taken into account while preparing the financial statements for an organisation.

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