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CENTRAL PHILIPPINE UNIVERSITY
Jaro, Iloilo City 5000, Philippines
COLLEGE OF BUSINESS AND ACCOUNTANCY
DEPARTMENT OF BUSINESS ADMINISTRATION
MODULES
IN
FIN 2101 FUNDAMENTALS OF FINANCIAL MANAGEMENT
REVISION NO. 0
Effective Summer 2020
Prepared by: MA. ROSALENE J. MADERO, Ed. D.
Professor
Checked by: NELIA G. BONETE, M.B.A.
Chairperson
Department of Business Administration
Approved by: LORNA T. GRANDE, Ph.D.
Dean
College of Business Administration and Accountancy
Date of Effectivity:
Summer 2020
Rev. No. 0
Revision Date:
June 2020
Prepared by:
MA. ROSALENE J. MADERO
Checked by:
Approved by:
NELIA G. BONETE, M.B.A.
Chairperson, Dept. of Bus Adm
LORNA T. GRANDE, Ph.D.
Dean, College of Bus & Accty
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CENTRAL PHILIPPINE UNIVERSITY
Jaro, Iloilo City 5000, Philippines
DEPARTMENT OF BUSINESS ADMINISTRATION
COLLEGE OF BUSINESS AND ACCOUNTANCY
MODULES IN FIN 2101: FUNDAMENTALS OF FINANCIAL MANAGEMENT
Course Code:
Fin 2101
Course Title:
Fundamentals of Financial Management
Course Description: This course is an introduction to financial management, an application of financial analysis
tools in valuing bonds and stocks and the risks associated with valuation; capital budgeting
techniques, cash flow estimation and risks in capital budgeting; managing working
capital, cash and financing, corporate financial planning, and other concerns related to the
financial policies of the firms.
Pre-requisite:
Acctg 1205, GE Math 1 World
Credit:
3 units
Class Schedule:
Lecture: 3 units
Lecture: 3 hours per week
Time:
Day:
Room:
Instructor:
Name: Ma. Rosalene J. Madero
Office: Department of Business Administration
Room: OV 109
Tel No. 329 1971 local 1070
Consultation Schedule:
Time:
Day:
Room:
Other Teacher(s) teaching the course:
Name: Lucio T. Encio, Ph.D.
Office: Department of Business Administration
Room: OV 109
Tel No. 329 1971 local 1070
Consultation Schedule:
Time:
Day:
Room:
Course Coordinator:
Name: Prof. Jonathan J. Razon
Consultation Schedule:
Time:
Date of Effectivity:
Summer 2020
Rev. No. 0
Revision Date:
June 2020
Day:
Prepared by:
MA. ROSALENE J. MADERO
Room:
Checked by:
Approved by:
NELIA G. BONETE, M.B.A.
Chairperson, Dept. of Bus Adm
LORNA T. GRANDE, Ph.D.
Dean, College of Bus & Accty
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MODULES IN FIN 2101 FUNDAMENTALS OF FINANCIAL MANAGEMENT
MODULE 9 – LOANS AND RECEIVABLES MANAGEMENT (WEEK 16)
MODULE 9 OUTLINE:
0.
1.
2.
3.
4.
5.
Objectives/Learning Outcomes of Module 9
Definition of Receivable
Accounting Elements that Affect Receivable
Handling of Receivables
Faster Conversion of Receivables
Industry Practice
MODULE 9 PROPER:
M9-0. Objectives/Learning Outcomes of Module 9
After finishing Module 9, the student is expected to:
0.1 understand the current concept of receivables and its parameters;
0.2 discover the importance of control measures to safeguard the collectible status of the accounts;
0.3 analyze and classify receivable; and
0.4 explain common misuses of receivable.
M9-1. Definition of Receivable
Loans and receivables is defined by PAS 39 as “non-derivative financial assets with fixed
and determinable payments that are quoted in an active market”
Receivables are financial assets that represent a contractual right to receive cash or other
financial assets from another entity or customer. The examples are the following:
1.1 Traditional accounts receivable – also called trade accounts receivable not supported by a
promissory note. It is normally supported by a credit invoice issued by the firm
which has credit terms. The credit terms stated in the invoice are the basis of the accounting
department on whether the customer’s account is not yet due or past due already. This is
also the basis for recognizing an impairment loss arising from a receivable account.
1.2 Notes receivable – a receivable that is supported by a formal promise to pay in the
form of a note.
1.3 Loan receivable – a receivable arising from transactions with banks and other
institutions.
Date of Effectivity:
Summer 2020
Rev. No. 0
Revision Date:
June 2020
Prepared by:
MA. ROSALENE J. MADERO
Checked by:
Approved by:
NELIA G. BONETE, M.B.A.
Chairperson, Dept. of Bus Adm
LORNA T. GRANDE, Ph.D.
Dean, College of Bus & Accty
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M9-2. Accounting Elements that Affect Receivable
2.1 Discounts.
2.1.1 Trade discounts – a discount that is not recorded in the books of accounts; granted to
a customer because of the bulk order that they made; normally expressed in
percentage and will encourage customers to buy in commercial quantity.
2.1.2 Cash discount – a discount that is recorded in the books; discount that
you can see in your income statement in order for you to come up with net
sales. This encourage the customer to pay on time because if they pay early
or within the number of days to pay to avail of discount within the credit
terms, they can avail of the discount.
2.2 Returns.
2.2.1 Sales returns – the goods which the customers have physically returned
which maybe caused by wrong shipment or deliveries of merchandise.
2.2.2 Sales allowances – goods delivered to customers but are defective; the
firm agrees to reduce the receivable account by granting sales allowance.
Instead of physically returning the goods, the customers agree to accept the
delivery at reduced prices.
2.3 Risk Evaluation.
There is always an inherent risk in granting credit to customers. In order to
minimize this risk, the following must be exercised:
2.3.1 Conduct a field investigation on the customers’ paying behavior; you can
ask from a third party on how a particular customer behaves in settling
his/her accounts with suppliers.
2.3.2 Ask for a financial report duly certified by a Certified Public Accountant
from the applicant/customer applying for credit facility, then prepare a
financial analysis.
2.4 Receivable Analysis:
2.4.1 Accounts Receivable Turnover (ART):
Formula:
ART = Total Credit Sales / Average accounts receivable
Assume the following information taken from the records of a customer:
Particulars
Year 2018
300,0000
240,000
150,000
120,000
2,950,000
1,770,000
Cash
Accounts receivable
Merchandise inventory
Accounts payable
Sales
Cost of sales
Date of Effectivity:
Summer 2020
Rev. No. 0
Revision Date:
June 2020
Prepared by:
MA. ROSALENE J. MADERO
Year 2017
250,000
260,000
180,000
150,000
2,650,000
1,590,0000
Checked by:
Approved by:
NELIA G. BONETE, M.B.A.
Chairperson, Dept. of Bus Adm
LORNA T. GRANDE, Ph.D.
Dean, College of Bus & Accty
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Total credit sales was P2,950,000 and the average accounts
receivable is 250,000.
ART = 2,950,000 / 250,000
= 12 times
The receivable turnover is 12 times. The firm was able to sell and
collect 12 times in a year.
2.4.2 Number of Days in Receivable (NDR):
NDR = 365 days / receivable turnover
Using the same example:
NDR = 365 / 12
= 30 days
The number of days in receivable is 30 days. This means that the
firm can collect its receivable in 30 days.
M9-3. Handling of Receivables
The following personnel are involved in handling receivables:
3.1 Credit and Investigation Personnel (CI) – evaluate the customers’ credit facility.
Normally, these are the staff who go and inspect the site of the firm applying for a credit
facility and check if the firm is really there and even observe how transactions are process
during the day. They also ask for the financial statement and analyze the firm’s paying
capabilities. This way the risk of uncollected receivables is minimized.
3.2 Sales representatives – personnel who sell the products of the firm. They are the ones who
have face-to-face contact with the customers and motivate them to maximize their credit
facility.
3.3 Collectors – collect the accounts receivable from customers
3.4 Cashiers – receive money from the customers and from collectors
3.5 Bookkeepers – record the official receipt from the cashier
3.6 Auditors – check the activities related to receivables.
Remember that any of these personnel can affect the total receivables. Recording and
reporting can result to wrong decision by management if they do not do their responsibilities well.
M9-4. Faster Conversion of Receivables
The following are the ways to convert your receivables faster:
Date of Effectivity:
Summer 2020
Rev. No. 0
Revision Date:
June 2020
Prepared by:
MA. ROSALENE J. MADERO
Checked by:
Approved by:
NELIA G. BONETE, M.B.A.
Chairperson, Dept. of Bus Adm
LORNA T. GRANDE, Ph.D.
Dean, College of Bus & Accty
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4.1 Pledging – the firm can obtain cash by using the receivables as a pledge or collateral to
secure loan payment;
4.2 Assignment – a formal type of pledging where specific accounts receivable will serve as
collateral.
4.2.1 Non-notification basis – the customers with accounts are not notified about the
Assignment; they just continue to pay their accounts to the firm; the firm will just
remit their payments to the lending company where the receivables were pledged;
4.2.2 Notification basis – the customers are informed and they pay their accounts direct
to the lending company.
4.3 Factoring – the firm sells the accounts receivables to a factor (lender).
4.3.1 casual factoring – selling of assets where the difference between the selling price
and the book value of the assets sold represents gain or loss.
4.3.2 as a continuing agreement – the factor assumes the credit function as well as
collection function of the firm;
4.3.3 credit cards – can be used by the customers in purchasing from the firm. The
firm consider the transaction as cash transaction; the customers of the firms pay
direct to the credit card company.
M9-5. Industry Practice
A firm that have large customer environment should tie up with various banking institutions:
5.1 Customers can now deposit their payment directly to the banks. This will cut some of the
cost of collection services; opportunity of losing the money collected by collectors due to
misappropriation, and forms which the firm uses as proof of payment.
5.2 Automatic debit arrangement with the banking system; the account of the customers is
deducted from his/her debit card (a bank account with a card where the cost of purchases
can be paid by just swiping the debit card);
5.3 Phone banking – the services can enable the customers to pay in the comforts of their
homes and within their time and convenience. (You can only avail of this service if you
enroll with the bank of your choice. Once approved, you can start paying through phone.
Just be sure to keep the acknowledgment receipt which can be used as reference when there
will be a problem later.
5.4 Online banking. If you can access your bank account through the internet, you can pay
using this mode.
Date of Effectivity:
Summer 2020
Rev. No. 0
Revision Date:
June 2020
Prepared by:
MA. ROSALENE J. MADERO
Checked by:
Approved by:
NELIA G. BONETE, M.B.A.
Chairperson, Dept. of Bus Adm
LORNA T. GRANDE, Ph.D.
Dean, College of Bus & Accty