You are provided with the age analysis of debtors on 31 May 2023. Terms allowed to debtors: * All accounts to be paid in 30 days and 2% discount will be granted. * If any account is not paid in 60 days, 5% interest will be charged. * If any account is not paid in 90 days, the account is handed over. | NAME | >90 days | 90 days | 60 days | 30 days | Current | | ----------- | -------- | ------- | ------- | ------- | ------- | | D Daydream | | 90 | | | | | G Goodfella | | | | 1,550 | 4,200 | | H Hastie | | | | | 3,250 | | P Platsak | 4,250 | | | | | | S Skinflint | | 880 | 3,500 | 1,525 | 2,185 | | TOTAL | 4,250 | 970 | 3,500 | 3,075 | 9,635 | 1.3.1 How does the preparation of the Debtors' Age Analysis assist in the control of debtors? (3) 1.3.2 How much is owed by the debtors on 31 May 2020? (2) 1.3.3 Which debtor would you gladly give a credit reference? (2) 1.3.4 Which debtor would be 'handed over' and what does this mean? (3)
Answer (1)
1.3.1 How does the preparation of the Debtors' Age Analysis assist in the control of debtors? (3)
The Debtors' Age Analysis is an essential tool for managing and controlling receivables in a business. It helps in the following ways:
Monitoring Payment Patterns : By categorizing debts based on the age of the invoices, the company can easily identify which accounts are overdue and by how long. This allows for more efficient management of resources and targeted collection efforts.
Identifying Problems : Regular analysis helps to pinpoint potential issues with specific debtors who consistently pay late, allowing the business to address these potential risks early, either by adjusting credit terms or pursuing more aggressive collection actions.
Financial Planning : Age analysis provides a clear picture of cash flow projections. Understanding when payments are expected allows the business to plan for its cash flow needs and make informed decisions regarding its liquidity.
1.3.2 How much is owed by the debtors on 31 May 2023? (2)
To determine the total amount owed by debtors, add up all categories from the age analysis table:
Total owed = 4 , 250 + 970 + 3 , 500 + 3 , 075 + 9 , 635 = 21 , 430
Thus, the total amount owed by all debtors on 31 May 2023 is $21,430.
1.3.3 Which debtor would you gladly give a credit reference? (2)
From the given data, H Hastie only has debt in the 'Current' category amounting to 3,250. This suggests that they pay on time and are likely a reliable debtor. Thus, H Hastie would be a good candidate for a positive credit reference.
1.3.4 Which debtor would be 'handed over' and what does this mean? (3)
P Platsak has an amount of 4,250 in the '>90 days' category. This means that their account is beyond the 90-day mark and should be handed over.
When a debtor is 'handed over,' it means their account is referred to a collection agency or legal services for recovery processes. This step is taken as the last resort when all other attempts to collect the debt have failed, and it indicates serious delinquency on the debtor's part.
