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

Advance factoring and maturity factoring, Advance Factoring and Maturity Fa...

Advance Factoring and Maturity Factoring: In both recourse and non-recourse factoring whether the factor advances cash against book debts to the client instantly on assignment

Determine the creditors turnover ratio, Creditors turnover ratio ( or payab...

Creditors turnover ratio ( or payables turnover ratio) Meaning: this ratio establishes a relation ship between net credit purchases and average trade creditors. Objective

Estimate the labor cost, The Knapp Company needs to predict the labor cost ...

The Knapp Company needs to predict the labor cost in producing small carrot patch dolls. The following production information is available: Year Dolls Pr

Representation of simplex method, Representation of Simplex method We s...

Representation of Simplex method We shall use the example previously stated for the graphical solution. The standard form of the model is given by: Maximize :  Z = 3X E + 2

Asset securitisation, The emerging financial scenario has made a fierce com...

The emerging financial scenario has made a fierce competition among the companies to raise funds by innovative financial products by the capital and or money markets. Moreover sour

What are the disadvantages of budgetary control, What are the Disadvantages...

What are the Disadvantages of budgetary control 1) Uncertain future: the budgets are prepared for the future period. Despite best estimates made for the predictions may not

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

Continuous probability distribution, CONTINUOUS PROBABILITY DISTRIBUTION (U...

CONTINUOUS PROBABILITY DISTRIBUTION (USE OF NORMAL DISTRIBUTION) In reality the C-V-P variables might take any values in a continuous range. It could therefore be more appropriat

Describe the algebraic method of the break even point, Algebraic method of ...

Algebraic method of the break even point The break even point can be computed by the following method: a) Units of sales volume . b) Budget total or in terms of money va

Relevant cost, what are characteristics of relevant cost?

what are characteristics of relevant cost?

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