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Work capital Management - Coggle Diagram
Work capital Management
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Accounts Receivable
The business acquires an account receivable when it sells various merchandise or services on credit.
The term receivable means the customer's promise to pay with money the amount that was charged for merchandise or services, at a future date.
Usually, in business this promise is expressed with the amount of cash that will be collected within the next 30 days.
There are several types of receivables, but the 2 best known are: Notes receivable and accounts receivable.
- Classes of Accounts Receivable. Accounts receivable from customers represent the sum of money that corresponds to the sale of merchandise, or the rendering of services on credit to a customer.
- Customer Assistant Mayor and Control Account. In the information that keeps an individual record for each client. These customer subsidiary account records are classified in alphabetical order in a ledger called the "accounts receivable subsidiary ledger" or "customer subsidiary ledger."
The general ledger account, accounts receivable, is known as a control account.
This control account contains the total, or balance, of all individual customer accounts that appear in the subsidiary ledger.
The balance of each customer appears in the auxiliary ledger. Below we will provide examples of the accounts receivable control account of the Colombia Company, after making all the entries.
Relation of Accounts Receivable:
If the recording of all journal entries and ledger entries has been completed correctly, the total of all debit balances of customer subledger accounts should equal the divided balance of the control account, accounts payable collect from the general ledger.
Inventories
- Inventories: Available merchandise that represents the products that will be sold to customers.
At this point, we will study inventories, which were defined as the merchandise available at the end of the accounting period, and that at some point will be sold to customers.
It is necessary to obtain the cost of goods on hand and the cost of goods sold to compare the corresponding cost against the income, in order to determine the correct net income for the period.
We will study the available methods to value the final inventory, such as the perpetual inventory system and the periodic inventory system.
Valuation of an Inventory.
When merchandise is purchased for the purpose of reselling it, the purchase is recorded at cost, less the amount of any merchandise includes freight charges paid by the buyer, insurance comparing the merchandise in transit to the period of storage and, plus taxes.
Short Term Financing
In early 1992, Fortune magazine reported that the United States was in the midst of its worst credit crunch since World War II.
Business loans on the books of US banks had fallen by 8% from the year-ago level, and in certain states the decline was even worse—for example, New Hampshire had shown a 43% reduction. and Connecticut, Washington, D.C. and Massachusetts had declines of 20% or more.
A part of this decline could be explained by the decrease observed in the demand for loans, which is typical of recessions, mainly as a result of businesses needing less money to finance expansion.
However, the main reason for taking out credit was that a large number of banks were in trouble—124 banks failed in 1991, and twice that number are expected to fail in 1992.
Ben Vernanke of Princeton University and Cara Lown of the Federal Reserve Bank of New York argued that the decline in lending had been caused by a sharp decline in overall demand for credit, but noted that a shortage of bank capital had limited the ability of banks to make loans.
Frank Cahouet, chief executive of Mellon Bank, added that a large part of the decline had come from an "invisible credit crunch" induced by banks: Borrowers were not applying for loans because they knew they would be turned down, and they were not using their credit lines. of credit because they knew their bankers would object.
Short-term credit is defined as any liability that was originally scheduled to be settled within one year.There are numerous sources of short-term funds, and in the following sections we will describe the four main types:
- accumulated liabilities,
- accounts payable (trade credit),
- bank loans and
- commercial paper. In addition, we expose the cost of bank loans and the factors that influence the choice of the most appropriate bank for a company.