Book-Keeping and Accounting for Entrepreneurial - myassignmenthelp

Question: Discuss about theBook-Keeping and Accounting for Entrepreneurial Finance. Answer: Policy and procedure on Accounts Receivable As mentioned in the question, the company follows a policy of giving discount to debtors for Net 2/7 days, which implies that 2% discount would be awarded to the debtor, in case he/she pays the amount within 7 days of its becoming due. This is one of the policies being followed in many of the companies in order to increase the volume of collection and improve the DSO, i.e., daily sales outstanding. The normal credit period being offered to the debtors by the company is 30 days from the date of invoicing and besides this; the credit is approved only to the approved customers with the credit limit of $2000. If at all, the credit limit needs to be increased for a particular customer, the same needs to be approved by the management. The company also follows a policy of giving the reminders through mails and phone calls to the customers once the normal approved limit of 30 days is crossed and it becomes due for more than 30, 60 and 90 credit days(Baresa, Bogdan Ivanovic 2017). Assuming some rational figures, below is the illustration of factoring: The company may get its accounts receivable factored through an outside agency or it may go as per its own policy. The option available with the company is recourse and non-recourse, non-recourse means the outside agency/factor will bear all the risk of bad debts and in case of recourse factoring, the factor will not bear the risk of the bad debts and the liability will be on the company. Besides this, we have assumed that the factoring commission will be 0.5% of the total receivables of the company but in case of non-recourse, the same would be increased to 3%. To control this entire accounts receivable officer would be put in place that would be paid an administrative cost of $200 monthly. Also, assumed that 40% of the debtors have utilised the benefit, of paying within the limit of 7 days. The last assumption is bad debts in the normal course of the business are 10% of the receivables amount. In the above example, three options have been taken: Option 1: non-recourse factoring Option 2: Recourse factoring Option 3: No factoring From the results, it is clear that the company will best perform in case the non-recourse factoring is opted for based on the assumptions taken. Policy and procedure for accounts receivable The date of the policy will be 20th August 2018. The policy will be authored by the employee and will be approved by the management. The purpose of the policy will be to state the methods of maintenance of the accounts receivable of the company. The main responsibility will be assigned to the sales department and the cashier to manage the overall accounts receivable. The management will provide the required supervision. The human resource team will appoint qualified person for the role, who can manage the accounts effectively(Moraczewski 2017). The main procedures will be: Supply Of Credit It is important that the company must have a sound credit policy, where the customer who are provide credit, must get their accounts verified. There must be specific credit limit depending on the credit worthiness of the customers. Once the credit is allowed, proper checking of the payment must be done and it must be timely tracked. Invoicing Procedures The management of the invoices is an important part of accounts receivable. The business will try to accelerate the sales by issuing the invoices as soon as a transaction is completed. The invoices must contain all the details. There must be proper policies as per which the accounting department should issue the invoices and the sales department should enter the records. Accounting procedures helps in keeping attack of the total sales made, invoices issued and payment received from the customers(Abor 2017). Statements The company needs to maintain certain statements and records with respect to the total number of customers who are given credit. Total number of invoices issued and the total amount that is received and all must be properly recorded and reconciled in the end of the accounting period. Collection From Customers The most important step is the collection of the amount from the customers. In standard business there is a 30 days policy in case the customers pays in advance they can be given discount. Regular reminder should be given to the customers in case the amount is due. Bad debts should be booked in case the customer fails to pay the amount(Muller, Ward Moodley 2017) Bibliography Abor, JA 2017, 'New Venture Development and Sources of Financing', Entrepreneurial Finance for MSMEs , pp. 21-50. Baresa, S, Bogdan, S Ivanovic, Z 2017, 'SPECIFIC FORM OF SHORT-TERM', UTMS Journal of Economics, vol 8, no. 2, pp. 119-129. Moraczewski, E 2017, 'EVALUATE YOUR FUNDING SOURCES', Strategic Finance, vol 98, no. 8, pp. 23-24. Muller, C, Ward, M Moodley, T 2017, 'The relationship between the management of payables and the return to investors', Journal South African Journal of Accounting Research, vol 31, no. 1, pp. 35-43.