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Accounts Receivable
Accounts receivable represents the money owed by clients to an establishment for the sale of products and services, which must be paid within an agreed timeframe. It is commonly executed by generating an invoice and delivering it to the customer.
2,500 Questions
In accounting differentiate normal loss from abnormal loss?
Certain losses are inherent in the production process and cannot b eliminated.
These losses occur under efficient operating conditions and are referred to as Normal or uncontrollable losses.
-In addition to losses which cannot be avoided, there are some losses which are not expected to occur under efficient operating conditions, for example the improper mixing of ingredients, the use of inferior materials and the incorrect cutting of cloths. These losses are not an inherent part of the production process and are referred to as abnormal or controllable losses.
-Normal loss is the loss expected during a process. It is not given a cost.
-Abnormal losses is the extra loss resulting when actual loss is greater than normal or expected loss ,and it is given a costs.
-Since an abnormal loss is not given a cost, the cost producing these units is borne by the good units of output.
-Abnormal loss and gain units are valued at the same rate as "good" units. Abnormal events do not therefore affect the cost of good production. Their costs are analyzed separately in an abnormal loss or abnormal gain account
What increases and what decrease capital or owners equity?
Decrease capital through withdrawal of the money made by the owner, incur losses
What are the guidelines of sebi for issue of equity shares?
The important aspects of SEBI Guidelines, with reference to issue of equity shares are as under:
Eligibility Norms for Public Issues
As per the guidelines, an unlisted company can make an initial public offering (IPO) of equity shares or any security convertible at a later date into equity only if it has net tangible assets of atleast Rs. 3 crore in each of the preceeding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets. If more than 50% of net tangible assets are held in monetary assets, the company should have made firm commitments to deploy such excess monetary assets in its business/ projects. The company has a track record of distributable profits in terms of Section 205 of the Companies Act, 1956 for atleast three out of immediately preceeding five years. Extraordinary items should, however not be considered for calculating distributable profits in terms of Section 205 of the Act. The guidelines also require that the company should have a net worth of atleast Rs. 1 crore in each of the preceding 3 full years (of 12 months each) and if the company has changed its name within the last one year, atleast 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name. Also, the aggregate of the proposed issue and all previous issues made in the same financial year in terms of size (i.e. offer through offer document and firm allotment and promoters contribution through the offer document) should not exceed five times its pre-issue net worth as per the audited balance sheet of the last financial year.
An unlisted company which does not satisfy the requirements specified above can make a offer to the public of equity or any security convertible at a later date into equity only through book building process. The company must allot 50% of the issue size to the Qualified Institutional Buyers (QIBs) otherwise full subscription money is to be refunded. Alternatively, the project should have atleast 15% participation by Financial Institutions/Scheduled Commercial Banks, of which atleast 10% comes from the appraiser(s). In addition to this, atleast 10% of the issue size shall be allotted to QIBs otherwise full subscription monies should be refunded. QIBs here mean public financial institutions, as defined in Section 4A of the Companies Act, 1956, scheduled commercial banks, mutual funds, foreign institutional investors registered with SEBI, multilateral and development financial institutions or venture capital funds registered with SEBI, foreign venture capital investors registered with SEBI, State Industrial Development Corporations, insurance companies registered with IRDA, provident funds with minimum corpus of Rs. 25 crores, pension fund with a minimum corpus of Rs. 25 crores and 'Project' as aforesaid means the object for which the monies proposed to be raised to cover the objects of the issue.
Further, either the minimum post-issue face value capital of the company should be Rs. 10 crore or there should be a compulsory market-making for at least 2 years from the date of listing of the shares subject to the following:
- Market makers undertake to offer buy and sell quotes for a minimum depth of 300 shares;
- Market makers undertake to ensure that the bid-ask spread (difference between quotations for sale and purchase) for their quotes shall not at any time exceed 10%;
- The inventory of the market makers on each of such stock exchanges, as on the date of allotment of securities, shall be at least 5% of the proposed issue of the company.
Further, it is stipulated that an unlisted public company shall not make an allotment pursuant to a public issue or offer for sale of equity shares or any security convertible into equity shares unless in addition to satisfying the aforesaid conditions, the prospective allottees are not less than one thousand (1000) in number.
The guidelines require that a public issue of equity shares or any other security which may be converted into/exchanged with equity shares at a later date, in case of a listed company, may be made provided that the aggregate of the proposed issue and all previous issues made in the same financial year, in terms of issue size, does not exceed five times its pre-issue net worth as per the audited balance sheet of the last financial year. The issue for this purpose includes offer through offer document, firm allotment and promoters' contribution through the offer document.
Also, if there is a change in the name of the issuer company within the last one year, the revenue accounted for by the activity suggested by the new name should not be less than 50% of its total revenue in the preceding one full year period. The last one year should be reckoned from the date of filing of the offer document.
If the net worth after the proposed issue of equity shares or any security convertible at a later date into equity becomes more than five times the networth prior to the issue, it is also required to satisfy the criteria of Book-building process and allot 50% of the issue size to QIBs failing which subscription money is required to be refunded.
Eligibility norms require credit rating from a credit rating agency registered with Board and its disclosure in the offer document. Where credit ratings are obtained from more than one credit rating agencies, all the credit rating/s, including the unaccepted credit ratings, should be disclosed. It also requires disclosure regarding all the credit ratings obtained during three years preceding the public or rights issue or issue of debt instrument in the offer document. It is also required that the company should not in the list of wilful defaulters of RBI and the company should not be in default of payment of interest or repayment of principal in respect of debentures issued to the public, if any, for a period of more than 6 months.
Further, an issuer company can not make an allotment of non-convertible debt instrument pursuant to a public issue if the proposed allottees are less than fifty (50) in number. In such a case the company shall forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after the company becomes liable to pay the amount, the company shall pay interest @15% p.a. to the investors.
Eligibility criteria also require the company to file a draft prospectus through eligible Merchant Banker with SEBI at least 30 days prior to the filing of prospectus with the Registrar of Companies as prescribed in the guidelines. If the Board specifies changes or issues observations on the draft Prospectus, the issuer company or the Lead Manager to the Issue is required to carry out such changes in the draft Prospectus or comply with the observations issued by the Board before filing the Prospectus with ROC. Further the period within which the Board may specify changes or issue observations, if any, on the draft Prospectus is 30 days from the date of receipt of the draft Prospectus by the Board. Where the Board has sought any clarification or additional information from the Lead Manager/s to the Issue, the period within which the Board may specify changes or issue observations, if any, on the draft Prospectus is 15 days from the date of receipt of satisfactory reply from the Lead Manager/s to the Issue. If the Board has made any reference to or sought any clarification or additional information from any regulator or such other agencies, the Board may specify changes or issue observations, if any, on the draft Prospectus after receipt of comments or reply from such regulator or other agencies. The Board may specify changes or issue observations, if any, on the draft Prospectus only after receipt of copy of in-principle approval from all the stock exchanges on which the issuer company intends to list the securities proposed to be offered through the Prospectus.
It also requires the company to make a statement to the effect that the company has made an application for listing of those securities in the Stock Exchanges and should not have been prohibited from accessing the capital market under any order or directions passed by SEBI. A listed company can not make an issue of security through a rights issue, where the aggregate value of securities, including premium if any, exceeds Rs. 50 lacs, unless the letter of offer is filed with the Board, through an eligible Merchant Banker in the prescribed manner at least 30 days prior to the filing of letter of offer with Designated Stock Exchange.
The company is also required to enter into an agreement with a depository for dematerialisation of securities already issued or proposed to be issued to the public or existing shareholders and give an option to subscribers/shareholders/investors to receive the security certificates or hold securities in the dematerialised form with a depository.
There should not be outstanding warrants or financial instruments or any other right which would entitle the existing promoters or shareholders any option to receive equity share capital after the initial public offering in case of unlisted company making a public issue of equity share or any security convertible at later date into equity shares. The guidelines also require that all the existing partly paid-up shares must be made fully paid or the subscription money be forfeited if the investor fails to pay call money within 12 months. A company can not make a public or rights issue of securities unless firm arrangements of finance through verifiable means towards 75% of the stated means of finance, excluding the amount to be raised through proposed Public/Rights issue, have been made.
The aforesaid norms of eligibility are not applicable in the case of -
i. a banking company including a local area bank set up under Section 5(c) of the Banking Regulation Act, 1949 and which has received license from the Reserve Bank of India, or
ii. a corresponding new bank set up under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970; Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980; State Bank of India Act, 1955; State Bank of India (Subsidiaries Banks) Act, 1959.
iii. an infrastructure company -
a. whose project has been appraised by a Public Financial Institution (PFIs) or Infrastructure Development Finance Corporation (IDFC) or Infrastructure Leasing and Financing Service Ltd. (IL&FS), or a bank which was earlier a PFI, and
b. not less than 5% of the project cost is financed by any of the institutions jointly or severally irrespective of the fact whether they appraise the project or not, by way of loan or subscription to equity or a combination of both.
iv. rights issues by a listed company.
When does accounts receivable have a credit balance?
If an account has a credit balance the customer must have overpaid on their account or a credit was issued by the company and posted to the customers account, resulting in a credit or negative balance.
Format of a debtors control account?
Debtors Control Account
Balance b/d
xx
Cash/Bank
xx
Sales
xx
Discount Allowed
xx
Bank (Reverse Cheque)
xx
Return Inward
xx
Discount (cancelled)
xx
Bad Debts
xx
Other Charge by Debtor
xx
Contra
xx
Balance b/f
xx
total
total
Creditors Control Account
Cash/Bank
xx
Balance B/d
xx
Discount Received
xx
Purchase
xx
Return Outward
xx
Others Charge By Creditors
xx
Contra
xx
Balance b/f
xx
total
total
Indirect means diverging from a straight line/path, not going straight to the point,the opposite of direct.
It is used to mean a roundabout or covert method of action, in terms such as indirect taxes, indirect characterization, or indirect criticism.
Purchasing Power Parity theory?
it is the theory which determines the power of once country's currency to purchase a particular product in international market
How can management practices speed the collection of receivables?
How can management practices speed the collection of receivables?
What are advantages to creditors in case of note receivable than ordinary account receivable?
what are advatages of note receivables discounted to creditors
Why is depreciation necessary?
Depreciation is an incentive for investment in equipment. It encourages businesses to buy equipment that will be used to provide employment.
Depreciation is effectively a tax credit. It reduces the profits and therefore the taxes due.
Depreciation cost is a term used to account for the loss of value in an item over time. There are four methods of depreciation that are approved for use under the generally accepted accounting principles or GAAP. The most commonly used methods are straight-line depreciation, declining balance and percentage of use.
What is finalization of accounts?
Finalization of accounts is to prepare financial reports along with comparision and brefing of company's financial reports include (Income Statement, Cash flows, Balance Sheet, Statement Chages in Equity, Policies and disclousers) .
Limitation of computerized accounting?
One limitation of computerized accounting is that some errors can go undetected. A human mind has better judgment as to what is sensible and prudent in accounting.
Delinquency Cost refers to Debtors related cost i.e. to recover money, making phone calls, sending reminders to them or any other cost incurred on account of interaction with them to recall as to account balance. Thus, Follow-up debtors cost is called Delinquency Cost.
Accounts receivable turnover ratio?
The Turnover Ratio for A/R means that how often or how fast the customer is paying during a period it can be yearly
let's say:
(credit sales) / A/R (balance) = Receivables Turnover
10,000 / 1,000 = 10 times
So 10 times our accounts receivables is turning overduring the year, when we have $10,000 in credit sales per year, and an average A/R balance (it can be monthly) of $1000
A PLS account means Prize Linked Savings account. This is where a savings institute such as a credit union or bank awards a grand prize for people who open and/or contribute to a savings account. It works similar to a lottery to encourage people to save.
Every time someone contribute to their account they are given a ticket. The institute takes the money gained from interest acquired by the loaning of the savings people have and offers it as a whole lump some payout to the person with the winning ticket.
Many states have issues with this because it is seen as a gambling scheme that will affect the states lottery system.
What do you understand by cost accounting?
Cost accounting involves collecting, analyzing and summarizing various courses of action. Then, accounting advises the management on what to do.
When is Accounts receivable credited?
When you decrease your receivables. You take in cash on a loan payment... Cash is debitted. The corresponding action in double entry bookkeeping is to credit receivables. Cash went up, receivables went down by the same amount. When you decrease your receivables. You take in cash on a loan payment... Cash is debitted. The corresponding action in double entry bookkeeping is to credit receivables. Cash went up, receivables went down by the same amount.
Duties of assistant accoutant?
I hold the title of Accounting Assistant. I am responsible for input of Accounts Payable, Accounts Receivable, and customer Billings; maintenance of the Accounting Database; some light auditing; and pretty much anything dealing with those items along with other miscellaneous tasks. My superior is responsible for the financial reporting and payroll. Hope this answers your question.
How long can you keep invoices and credit notes for before destroying them?
Hi, you need to keep invoices & credit notes & all accounting documents for at least 10 years befor destroying them
What are the common audit procedures for accounts receivable?
* Perform a positive trade receivables circularisation of a representative sample of client's year-end balances, for any
non-replies, with client's permission, send a reminder letter to follow up.
* Review the after date cash receipts and follow through to pre-year-end receivable balances.
* Calculate average receivable days and compare this to prior year, investigate any significant differences.
* Review the reconciliation of sales ledger control account to the sales ledger list of balances.
* Select a sample of goods despatched notes (GDN) before and just after the year end and follow through to the sales
invoice to ensure they are recorded in the correct accounting period.
* Inspect the aged receivables report to identify any slow moving balances, discuss these with the credit control manager
to assess whether an allowance or write down is necessary.
* For any slow moving/aged balances review customer correspondence to assess whether there are any invoices in
dispute.
* Review board minutes of client to assess whether there are any material disputed receivables.
* Review a sample of post year-end credit notes to identify any that relate to pre-year-end transactions to verify that they
have not been included in receivables.
* Review the sales ledger for any credit balances and discuss with management whether these should be reclassified as
payables.
* Select a sample of year-end receivable balances and agree back to valid supporting documentation of GDN and sales
order to ensure existence.
* Trace a sample of shipping documents to the sales journal to determine that shipped goods were recorded as sales and to the accounts receivable subsidiary ledger to determine that shipments were recorded as receivables.
* Account for the numerical sequence of shipping documents and sales invoices to determine that all sales were recorded.
