IGNOU MCO 7 2017 2018 - Discuss the techniques available to monitor the receivables with examp

Question

Discuss the techniques available to monitor the receivables with examples.

23 Jan 2018

Answer :

Word Count : 664

Techniques to monitor the receivables are available on macro basis and micro basis.

Techniques available on Macro Basis:

- Average Collection Period (ACP) indicated the average period of credit allowed by the company to the customers. It is calculated in two stages as described below:

Calculation of daily or monthly sales:-

Credit Sales during the year/ Number of months or Number of days.

Calculation of Average Collection Period:-

Sundry Debtors in Balance Sheet / Daily/Monthly Sales

Techniques available on Micro Basis:

- Age wise analysis: This analysis involves classification of outstanding receivables at any given point of time into different age groups. It provides superior information about the quality of receivables on the basis of which the company can concentrate on its collection efforts on long period outstanding receivables

_____________________________________________________________

For control or monitoring accounts receivables, two methods are used:

(a) Ratio Analysis;
(b) Aging Schedule.

1. Ratio Analysis:

ratio analysis employs daily sales outstanding ratio (DOS) which is calculated by formula:
DOS = Accounts Receivables at Time t
. Average Daily Sales

The four weekly receivables are Rs.800, Rs.720, Rs.640, Rs.620 and weekly sales are Rs.300, Rs.312 and Rs.316 respectively. The DOS for six weeks will be as follows:

Rs.620 = 20 days approximately
(300+312+315)/30

The DOS should be below 4 predetermined periods. A better method

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