Chapter 8 37 so 9 describe methods to accelerate the

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Unformatted text preview: ze a company’s receivables. Financial Statement Presentation Financial Statement Presentation Accelerating Cash Receipts Three reasons for the sale of receivables: 1. Size. 2. Companies may sell receivables because they may be the only reasonable source of cash. 3. Billing and collection are often time­consuming and costly. Chapter 8-36 SO 9 Describe methods to accelerate the receipt of cash from receivables. Financial Statement Presentation Financial Statement Presentation National Credit Card Sales Three parties involved when credit cards are used. 1. credit card issuer, 2. retailer, and 3. customer. The retailer pays the credit card issuer a fee of 2% to 4% of the invoice price for its services. Chapter 8-37 SO 9 Describe methods to accelerate the receipt of cash from receivables. Credit Card Sales C1 Advantages of allowing customers to use Advantages credit cards: credit Customers’ Customers’ credit is credit is evaluated by evaluated by tthe credit he credit card issuer. card issuer. Chapter 8-38 Sales increase by Sales increase by providing purchase providing purchase options to the options to the customer. customer. The risks of extending The risks of extending credit are transferred to credit are transferred to tthe credit card issuer. he credit card issuer. Cash collections Cash collections are quicker. are quicker. Credit Card Sales Credit C1 On July 15th, TechCom has $100 of credit card On TechCom sales with a 4% fee, and its $96 cash is received immediately on deposit. Jul 15 Cash Credit Card Expense Sales DR 96 4 To record credit card sales and fees Chapter 8-39 CR 100 Financial Statement Presentation Financial Statement Presentation National Credit Card Sales Illustration: Morgan Marie purchases $1,000 of compact discs for her restaurant from Sondgeroth Music Co., and she charges this amount on her Visa First Bank Card. The service fee that First Bank charges Sondgeroth Music is 3%. Cash Service charge expense Sales Chapter 8-40 970 30 1,000 SO 9 Describe methods to accelerate the receipt of cash from receivables. Financial Statement Presentation Financial Statement Presentation Sale of Receivables to a Factor A factor is a finance company or bank that buys receivables from businesses for a fee and then collects the payments directly from the customers. Illustration: Assume that Hendredon Furniture factors $600,000 of receivables to Federal Factors, Inc. Federal Factors assesses a service charge of 2% of the amount of receivables sold. Cash Service charge expense Accounts receivable Chapter 8-41 588,000 12,000 600,000 SO 9 Describe methods to accelerate the receipt of cash from receivables. Chapter 8-42 Financial Statement Presentation Financial Statement Presentation Chapter 8-43 SO 9 Describe methods to accelerate the receipt of cash from receivables....
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This document was uploaded on 12/18/2013.

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