Credit period, Managerial Accounting

Assignment Help:

It refers to the length of time given to the buyer to pay for their purchases. Throughout this period no interest is charged on the excellent amount. The credit period usually varies from 30 to 90 days and in some businesses still a period of 180 days is permitted. If a firm permits 45 days of credit along with no discount for early payment credit terms are stated like 'net 45'. In case the firm permits discount for early payment the credit terms are stated as 1.5/15, net 45' showing that if the payment is made in 15 days a discount of 1.5 % is permitted else the whole amount is to be paid in 45 days.

Raising the credit period results in raised sales but at similar time entails raised investment in debtors and higher incidence of bad debts.  Reducing the credit period would have the opposite outcome. The consequence of rising the credit period on net profit can be estimated along with the assist of equation 2.

? NP   = [? S (1-V) - ? Sbn] (1- t) - k ? I

In this case ? I computed as:

? I = (ACPn - ACP0) [S0/360] + V(ACPn)( ?S/360)

Here

? I = raise in investments

ACPn = new average collection period

ACP0 = old average collection period

In equation 2a the first term shows incremental investments in receivables related with existing sales and the next term presents the investment in receivables arising out incremental sales.


Related Discussions:- Credit period

Pricing over the life cycle of a product, Q. Pricing over the life cycle of...

Q. Pricing over the life cycle of a product? The cycle begins with the invention of the new product. The innovation of a new product and its degeneration to a common product is

What is scientific standards and variance analysis, What is  Scientific st...

What is  Scientific standards and Variance analysis The important steps of standard costing as described above may be summarized as follows; 1) Scientific standards: stand

Calculate earnings per share, EMERALD LTD is planning an expansion programm...

EMERALD LTD is planning an expansion programme,which will require Rs 30 crores & can be funded through one of the following 1.issue further equity share of Rs 100 each at par.

Help, Jackson County Senior Services is a nonprofit organization devoted to...

Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three serv

What are the disadvantages of incremental budgeting, Disadvantages of incre...

Disadvantages of incremental budgeting a) Incremental budgeting suppose activities and method of working will continue in the same way b) No incentive for developing their d

What are the advantages of cost accounting, What are the Advantages of cost...

What are the Advantages of cost accounting: 1. Cost accounting as an aid to management: cost accounting helps the management in carrying out of its functions, planning, organ

Managerial decision, Explain the practical application of differential cost...

Explain the practical application of differential costing with examples

Profi t Planning, Master budgeting Jaya Sdn. Bhd. is a wholesaler. The mana...

Master budgeting Jaya Sdn. Bhd. is a wholesaler. The management of Jaya Sdn. Bhd. has been extremely worried about the company''s cash position over the last few years. In July 201

Intro to Managerial Accounting, I don''t know how to do a variable income s...

I don''t know how to do a variable income statement. Here is my assignment: The Used Books Company is a small online retailer operating out of a garage apartment. The owner buys

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd