,,
00
(vi)
Inv e for pa ym en t to be
. oic
pre pa red by a res po ns ibl e
.
pe rso n B t b .c
·
mvo1ce sh ou ld be ch ec ke
. u e1ore pa ym
en ts,
d wi thp ur ch as e ord er an d
go
od s received note.
(vii)
Pa ym en t: W he n pa ym en
ts are ma de rec eip ts sh
ou ld be collected fro ¢
su pp lie rs.
the
3. Classification and codifica
tion of materials
Cl as sif ica tio n of ma ter ial
s ref er to gro up ing mater
ials ac co rdi ng to their na
ca teg or ies fo r ex am ple co
ture in su ita ble
pp er, iron, alu mi nu m may
be
cla
ssified as materials. Codif
pr oc es s of giv ing co de s
ication is a
to ma ter ial s for easy locati
on
of
ma
ter
ial
s . For Example, a nu mb er
all oc ate d to ea ch ite m an
is
d su b groups are indicated
by
de
cim
als e.g Steel 3
Co rd ing sy ste m ma y be nu
Steel nails 3.4
me ric al, alphabetical or bo
th
(al
ph
an
um
eri
4.
cal
).
St oc k taking
It is the du ty of the store ke
ep er to know the quantity
of stock in the stores at an
on e wa y of kn ow ing this
y on e mo me nt
is by use of a perpe
tual inventory system (PIS)
sy ste m sto ck ba lan ce s are
in a perpetual inv en tor y
recorded after every receip
t
and
issue of materials. This is do
us e of the bin card or stores
ne by the
ledger.
Th is en ab les the store ke
eper to know the quantity
and value of stock at any
ph ys ica l sto ck tak ing coun
time, wi tho ut
t.
St oc k tak ing relates to the
physical counting of store ite
ms to ensure that the physi
in the sto re correspond to
cal quantities
reconcile with the records
ma
int
ain
ed
in the stores . It also ensur
pe rio dic review of the stores
es
procedures. It can be of two
types.
(a) Pe rio dic Sto ck tak ing
.:
This is where the physical
counting of materials in the
stores is done at the time wh
final accou nts are prepared.
en the
Usually this is at the end of
the financial year.
(b) Co nti nu ou s sto ck tak
ing
This is where the physical
counting of the materials in
the stores is done on a conti
basis by the sta ff not conn
nuous
ected with the stores. It can
be done weekly, monthly or
ti mes dail y. The differences
at
discovered are investigated
and corrective action taken.
34
MANA GEME NT OF DEBT ORS
DEBT ORS
ers in the near future ..
Debtors are receivables which a firm in expect s to collect from custom
on credit but also
Debtors arise out of sale on credit. There are benefi ts associ ated with selling
there are costs involv ed .
Benefits include:
Buildin g custom er relatio nship
1.
Increase on sales
11.
Provision for high profits
111.
Cost include:
Leads to busine ss loss arising from bad debts
1.
Declin e in stock
11.
Loss of custom ers
u 1.
Purpo se of manag ing debtor s
ion costs,
Debtor s are manag ed to mm1m1ze the associ ated costs e.g collect
(i)
opport unity costs and implic it costs
To avoid the occurr ence of bad debts which may lead to busine ss loss
(i i)
They are also manag ed becaus e they lead to the increa se of sales
(ii i)
They are used as marke ting tools
(iv)
Debto rs build end user ' s relatio nship
(v)
Measu res to manag e debtor s
Debto rs should be accele rated to pay
(i)
Credit terms;
(ii)
includ e;
There are condit ions under which a firm grants credit to custom ers. They
custom er e.g "net 60"
(a) Credi t period : This is the length of time for credit is extend ed to
60 days.
meani ng all credit custom ers are expect ed to settle their obliga tions within
them settle their
(b) Cash discou nt: This is a price reduct ion offered to custom ers to entice
3
reduct ion of
obliga tions earlier than credit period e.g ho, net 45" meani ng that a price
days otherw ise
3% will be grante d to all custom ers who settle their obliga tions wi th in 20
a ll credit obliga tions should be settled within 45 days.
(iii )
Autho rizatio n
Credit sales should be author ized by a responsible person only.
(iv)
Credit limit
Ensure that credit limit is not exceed ed
(v)
Worth y custom ers
Credi t should only be g iven to freque nt and worth custom ers
(vi )
Recor din g
Ensur e tha t a ll cred it sales are proper ly record ed .
(vi i)
.
.
Person al contac t
ssively mforrr~
Endea vour to make person a l contac ts with credit custom ers and progre
the custo m ers o f your intenti on to use legal action.
35
(viii)
Insuring debtors
(ix)
.
This is where a firm insures all its debt
ors With an insura
t
f fail
nee company so that irr case
ure o pay by some cli ents the insura
o
'
come in .
will
company
nee
'
Collatera l
(x)
These are the assets of val id th at can be used to
·
·
f;allure
access credit as a security against
to settle obligatio ns.
Collecti on procedur es
These are efforts under taken by the
firm to collect payments from slow paying
custome rs. It is a step by step process .
.
·
• Sending a reminde r t o customers e.g sending
note
credit
• T he above can be fo llowed by sending letters to remind the customer that their
credit is due.
GROSS WORK ING CAPITA L INVESTMENT
Working capital refers to the firm's investment in short terms assets and is required to ensure
business operatio ns to take place on a day to day basis in order to produce a desired goods and
services .
Short term assets like inventory, pre-payments, debtors, short term commercial paper, cash and
so on make up a firm's gross working capital.
When short term liabilitie s like creditors, accruals, bank over draft etc when these are off set
from across working capital the resultant is net working capital.
Net working capital
It is given by obtainin g the total current assets minus the total current liabilities
Exampl e
been extracted from a firm's balance sheet.
The followinCa balances have
.
Stock is 40m, cash 15m, creditors 20m, retained profit 22m. debtors 30m, accruals wages l Om
Required to determin e gross working capital and net working capital
Solution
=
Gross working capital
Stock 40m + Cash· I Sm + Debtors 30m
85m
=
Gross working capital
Current Liabiliti es:
Accrual wages
Creditor s
Retained profit
Short term assets
=
=
=
10m
20m
22m
52m
Total
- Liabiliti es (85 - 52
Therefo re; Net working capital = GWC
Therefo re, compon ents of working capital they include;
Total current assets and total current liabilitie s
36
= 33m)
-BU DGE TIN G
Budg€:,ting is an act of preparing budgets. "The entire process of preparing the budgets" .
action in advance for a
. . · A budg;t is defined as a quantitative statement expressing a plan of
s and
defined period of time, which may include planned expenses, revenues, assets, liabilitie
cash flow. Thus it is a statement which expresses future plans in financial terms.
period which
·. ·"A budget is pre-detem1ined statement of manage ment policy during a given
provides a standard for compar ison with the results actually achieve d"
function
Budget can be prepared for the organization as a whole (master budget), department,
capital
such as production purchas e, sales etc, or for financial resources for exampl e cash,
expend iture etc.
organiz ation
Budget prepara tion process is a means and a way of translating the overall
under two
objectives into detailed agreed feasible action plan. Budgets may be prepare d
approac hes i.e increme ntal budgeti ng and zero-ba sed budgeting.
IMPOR TANC E OF BUDG ETING
Plannin g
set targets,
Making manage rs to prepare and implem ent budgets is forcing them to look ahead,
foresee problem s, hence giving directio n to be followe d by the firm .
Contro l
enterpr ise can
Once a budget act has been set out for a period, control over the perform ance of an
taking con-ect ive
be exercis ed by regular compar ison of actual and budgete d perfom 1ance and by
action if necessa ry as per the compar ison results.
Comm unicat ion
tion of senior
Bud get act as good commu nicatio n channe ls with .respec t to the expecta
entatio n of
manag ement commu nicated to lower level manage rs who are respons ible with implem
to problem s
the budgets . Lower manage rs in tum commu nicate to the top leaders hip with regards
and their own ideas.
Co-ord ination
master budget be
Severa l departm ental and functio nal budgets must finally be linked, that the
finally achieve d and becom e feasible . The budgets in process therefo re forces separat e
the master budget
departm ent or manag ers of firm to work togethe r as a team ensurin g that
expect ation are realize d .
Motivation
such areas and
Final budget of particu lar areas are express ion of what exactly is expecte d from
tions become
hence manag ers there in, over the budget period, it follows then that these expecta
to · achieve the ·
challen ges to all manag ers and employ ees concer ned, and hence motiva te them
bud geted perform ance.
37