Receivables float refers to the incoming checks that are supposed to be delivered to a company but have not yet been collected because of delays. The customers to a business or a company may cause the delay.
Q2: Payables Float
Payables float relates to outgoing checks meant to have been paid to creditors but have not yet been paid because of delays from the side of the company.
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Q3: Ways of Shortening the Receivables Cycle
A company may shorten the receivables cycle by reducing customers’ credit time to lesser days, say from sixty days to thirty days or so. Moreover, an active follow-up and reminder is necessary to ensure the clients make the payments in time. This follow-up entails good rapport between the company and its customers and through understanding when customers get their regular payments, the business can schedule the billing arrangements to coincide with the customers’ payment cycle.
The improvement of inventory in business is another way businesses can shorten receivables cycles. Snapp (2012) argues that inventory optimization technologies are tailored to help the user in identifying an appropriate mixture of cash in hand and inventory. By doing this, the collaboration tools shorten the lag time between cash cycles in businesses.
Furthermore, good relationships with suppliers are vital for the reduction of the shortening of the receivables cycle in such a way that there is an establishment of a longer period for repaying debts than the normal terms of receivables. As a result, this approach helps business to have more cash in hand.
Q4: Receivables Fraud
According to Wells (2011), lapping is one of the common receivable frauds. Through lapping schemes, an employee misappropriates money received from one customer’s payment, then diverts the next customer’s payment to cover up the previously misappropriated payment and the chain continues and the fraud becomes complex as the amount of lost money and manipulated transactions increase over time. Wells (2011) argues that organizations should incorporate the date of customer payment on billing statement to identify and minimize such frauds.
Q5: T ypes of Inventory Valuation Methods
There are two commonly used methods for inventory valuations, First-in, First-out (FIFO) and Last-in, First-out (LIFO). With FIFO inventory valuation method, it is assumed that the first inventories purchased are the ones to be sold first. This is a simple, realistic, and practical method of valuation. FIFO also guides companies in their issuance and usage of materials that were purchased first. However, it becomes difficult to use FIFO for monetary valuation in businesses where there are many transactions and the prices are not steady ( Snapp, 2012 ). On the other hand, LIFO is used in allocating an accounting value on inventories. According to this theory, the last inventory purchased item is the first one to be bought. This technique is vital in business where there is assumption that inventory cost will increase over time. This tool is also useful in times of inflation where the cost of goods is higher whereas the balance in the inventory is lower. However, LIFO fails to indicate current prices, thus rendering it obsolete in assessing current situations. Furthermore, LIFO entails more calculations that are complicated when there is fluctuation in prices, which makes it difficult to use.
Q6: Reasons Why a Controller Considers Many Factors to Assist In the Determination of Capital Asset Expenditures
The most common reason why analysis has to be made before a company invests in any capital assets is the availability and scarcity of funds. A company must be able to finance a project at hand before considering venturing into it. Some projects can be too huge for the company and end up paralyzing other activities. Secondly, a controller has to analyze the minimum rate of returns and the quantum profit within a certain period. If the chances of specific returns and profit are limited, such project may not be undertaken (Int'l Business Publications, 2015). It should also be noted that competitors’ activities among others also contribute to the final decision of a company’s controller in regard to capital asset expenditure.
Different accounting methods might be used in the valuation of the expenditure. The most common ones are payback period and internal rate of return among others. In payback method, the length of time required to recover the amount money used in the investment. Despite being simple and easy to use, payback technique does not consider the time-value of money and cash flows over the entire life of the project ( Needles, Powers, and Crosson, 2011 ). On the other hand, Internal Rate of Return method clearly considers the time value of money and it traces the flows of cash throughout the lifespan of the project.
References
Int'l Business Publications, USA. (2015). Oman Tax Guide: Strategic Information and Basic Regulations . Intl Business Pubns USA.
Needles, B. E., Powers, M., & Crosson, S. V. (2010). Financial and managerial accounting . Mason, OH: South-Western Cengage Learning.
Snapp, S. (2012). Inventory optimization and multi-echelon planning software: Concepts explained with screen shots and examples from MEIO applications . Las Vegas: SCM Focus Press.
Wells, J. T. (2011). Corporate fraud handbook: Prevention and detection . Hoboken, N.J: Wiley.
