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

Credit standards, This variable deals along with the granting of credit. On...

This variable deals along with the granting of credit. On one great all the customers are granted credit and conversely, none of them are granted credit irrespective of their credi

Identify the management assertions, Identify the management assertions rela...

Identify the management assertions related to each of the fictitious supplier credits and unrecorded amounts in accounts payable using the facts presented

What are the advantages of zero base budgeting, Advantages of zero base bud...

Advantages of zero base budgeting 1) it provides a basis for evaluating decision packages on the basis of benefit considerations 2) it reduces inefficiency and achieves high

The break even point in dollorsales for rice company, the break even point ...

the break even point in dollorsales for rice company is48,000 and the company's contribution margin ratio is 40 percent. If Rice Company desires a profit of $84,000, how much wou

What is product life cycle, Product life cycle Every product has a life...

Product life cycle Every product has a life cycle. The life cycle of a product vary from months to various years. For example in the case of cameras photocopying machines etc.

Impact of Cost Structure., You are required to provide a report of approx 5...

You are required to provide a report of approx 500 words or less (excluding attachments and references), accompanied by relevant calculations, in MS Word, MS Excel and/or PDF forma

Capital budgeting – planning investments, Project C would involve a current...

Project C would involve a current outlay of $50,000 on equipment and $15,000 on working capital. The investment in working capital would be increased to $21,000 at the end of the f

Explain decision unit - zero base budgeting, Explain decision unit - zero b...

Explain decision unit - zero base budgeting Decision units: an organization is divided among decision units. The manager of the decision unit justifies the relative budget

State overhead expenses, State overhead expenses It is to be noted tha...

State overhead expenses It is to be noted that the term overheard has a wider meaning than the term indirect expanses. Overheads include the cost of the indirect material and

Financial accounting , Financial Accounting Which is concerned with th...

Financial Accounting Which is concerned with the provision of information to external parties outside the organization? It is the procedure of measuring, classifying, summariz

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