How to Manage and Calculate the Year-End Accounts Receivable Balance?
Accounts Receivable Solutions can help by estimating year-end accounts receivable (A/R) of a company which can assemble budgets or forecast its financial statements. Accounts receivable (debtors) represents the credit sales a company makes to its customers that have been billed but not yet paid by the customer. Now, It has become the assets of the company. Getting a record of customers who are debtors of the company, helps a company in preparing so many things. Its project sales, expenses, and cash flow needs as well as other financial metrics along with the end of year business spending.
Average Collection Period (ACP)
Companies want to estimate when they’ll get their credit sales from their customers. Once a sale is being made but the customers have not sent in a check for payment, the company accounts for such unpaid customer balances in its financial statements as Accounts Receivable. This asset account is stated on the right side of the balance sheet. The company can calculate its ACP which shows accountant the average number of days the company should wait before the customers will clear their bills.
Calculation of Year-End Account Receivables
To calculate year-end accounts receivables, just do a simple calculation. Take the 1st month’s 1st date A/R balance and then all 12 months end date balance, now you have a total of 13 figures. Add all those 13 figures and then divide the total from 13. This is how without estimating the ACP it will give you 13 months of A/R balances. And now you can see this outcome as your average accounts receivable balance for your year end year. This is the best way of getting your accounts receivable solutions. For more visit SS360 for your accounts receivable solutions.
How to Calculate ACP?
Now that you’ve your year-end average Accounts Receivable balance calculations in your hand, you can use this calculation to calculate your company’s ACP. And you can manage the relationship between these figures. To calculate the ACP, firstly you have to evaluate the company’s annual credit sales in figures made to its customers. For a budget or forecast, and to calculate the end of year business spending you can use the previous year’s credit sales figures as a starting point and then factor in some growth to reach an estimate for the current year forecast.
The formula for ACP calculation:
ACP = 365 days ÷ A/R Turnover ratio
Where A/R Turnover ratio = (Annual credit sales / Average A/R)
A lower average collection period indicates that your company collects its receivables fast. But if the collection period is higher than average(more than 30 days), that means the collection is happening slowly and it can impact the cash flow. Company’s payment ability will be affected inversely.
STEPS TO CALCULATE AND MANAGE END OF YEAR BUSINESS SPENDING:
In business, you will have to spare some time and calculate how your business is financially doing, or what is its financial status. You have to evaluate the both right and wrong things you are doing. And the best possible way to do it, is to see your year-end numbers.
Since you are now well acquainted with the required terms and the formulas, let’s get started with the calculation and management of the business’s year-end spending.
KEEP UPDATING YOUR PROFIT AND LOSS ACCOUNT: –
You will have to update your profit and loss account properly. Why? To see at the end of the year how well your business did. Whether you made a profit? Whether you made a loss? Did you pay yourself a wage? If yes, then how much?
YOU WILL HAVE TO KEEP UPDATING YOUR YEARLY NET WORTH STATEMENT: –
The next very obvious thing you have to do is to update your balance sheet for your business. Balance Sheet basically, in simple terms is a list of your assets and liabilities. To calculate your year-end expense, you have to know how much you are liable to pay and what is the worth of your assets. And, if your business have a positive or a negative worth at the end of the year, you need to know that!
As mentioned above, to calculate your year-end accounts receivables, take the 1st month’s 1st date A/R balance and then all 12 months end date balance and now you have a total of 13 figures. Add all those 13 figures and then divide the total from 13, with the help of ACP(formula mentioned above).
You can always find these month-end balances in your balance sheet, and hence always available in your accounting records!
CASH FLOW BALANCE: –
Know your business’s year-end cash and cash equivalents balance. You have to add and subtract certain accounts in your accounting records during the year.
So, add total debit in the beginning balance and subtract the total credit to calculate the year-end balance.
DIRECTORS’ REPORT: –
Your year-end accounts generally have a directors’ report. As this is a written document by the directors of the companies they summarize the overall performance of the company over the year. They also put forth their views on the company’s current position and their thoughts about its performance in the coming future.
MANAGE AND ANALYSE YOUR COMPANY’S GROWTH FOR THE PAST FIVE YEARS: –
Maintain and compare your company’s trends over the past five years. This will not only help you make better decisions but also you can strategize as to how you can improve in the future. Keep a note of your business’s growth rate from year to year.
FORM YOUR GOALS FOR THE NEXT YEAR: –
Your final step will be to set goals for the upcoming year. You can set goals for net profit, sales, revenue generated, etc. You can write them up in your notebook or laptop and maybe share it with your employees.
Maintaining and calculating your year-end balance is extremely important and yet an easy task to do. You just have to both accurately and timely maintain your records or entries and you are good to go!
If you need help with ‘Accounts Receivable Solutions‘ for your Business or Company then feel free to contact us.