Category Archives: 2.08 Revenue and Receivables

Overdue receivables should be made to earn interest

Whenever your customers cannot pay in due time, you should ensure they’re aware of the consequences. Under normal conditions, if you buy from somewhere services or goods and don’t pay up, it’s considered taking a loan. I say “normal conditions” since it’s assumed you haven’t bargained for special treatment, i.e. longer payment terms for an example.  Continue reading

Accounting treatment for discount to customers for early payment (“cash discount”)

There are situations where you might be in need of cash or to simply motivate your customers to pay up quicker to have some buffer when it comes to more liquid resources, you’d implement something called a cash discount.

The way cash discount works is simple – there’s the expected payment deadline and in addition, if the customer pays earlier, say instead of the normal period that’s 14 days, they pay within 7 days, they get an additional discount of 5% (the discount rate here is entirely up to you, but keep in mind that on one hand it should not be significant so that it would hurt your profits and on the other hand it cannot be too small since it wouldn’t motivate any more).  Continue reading

Consistency

It’s such a simple word, with a clear and simple meaning, and yet often neglected and outright ignored. Why is it so however, I have no idea.

Let me explain.

Consistency is by default presumed in your daily reporting and as such, it is assumed you would account similar transactions in a manner that is consistent from day to day, from period to period. It is also assumed that your accounting routines are similar from transaction to transaction, i.e. referencing documents, describing the entries within the accounting system, reading the subject matter of the transaction as opposed to what’s written on the document and giving all similar transactions the same accounting treatment.   Continue reading

Settlements – why have them?

What does someone settle? Debts usually, right?

In everyday business you’d settle receivables with payables if you have them with the same party. There’s no real point in you paying the company B a certain sum and then the company B paying you effectively the same money back. It’s a wasted time, bank charges etc. Instead, agree on a settlement – settle both party’s balances and see where the net result ends up, who has to pay to who.  Continue reading