Finance Assignment: Waitrose Credit and Receivables Analysis

This finance assignment solution addresses key concepts in financial accounting and credit management. Question 1 explores the extension of trade credit, considering the products and services of a firm (Waitrose Limited), the rationale behind offering credit, its impact on sales and profits, and methods to ensure customer payments. It also covers accounting methods for uncollectible accounts. Question 2 involves the computation of uncollectible amounts from debtors using different approaches, including journal entries, and calculating uncollectible account expense based on a percentage of sales and credit sales, as well as considering the balance in allowance for doubtful accounts. Question 3 explains the calculation and use of receivable turnover, an accounting method used to analyze a company's efficiency in collecting its receivables and managing credit extended to clients. The solution provides detailed calculations and explanations, supported by references to relevant literature.

Account

Table of Contents
Table of Contents.............................................................................................................................2
QUESTION 1..................................................................................................................................1
Products and services of the firm.................................................................................................1
Trade credit would be extended of the organisation or not.........................................................1
If trade credit will be extended then how it will be ensured that firm is paid by all its
customers.....................................................................................................................................1
Which method will be used to account for those who fail to pay................................................1
QUESTION 2..................................................................................................................................1
Computation of uncollectible amount from debtors....................................................................1
QUESTION 3..................................................................................................................................2
Explanation of the receivable turnover calculation and the way in which it is used...................2
REFERENCES................................................................................................................................3

QUESTION 1
Products and services of the firm
The firm in which the proprietor will be working is Waitrose Limited. Different types of
products and services that are offered by it are grocery, household, health and beauty, lunch
boxes, daily care etc.
Trade credit would be extended of the organisation or not
The trade credit could be extended for the customers who were paying their debts on time
from last few months or years. It will be extended because it can help to establish good relations
with them and retain them for long run. This decision will affect the profit and sales because it
will result in satisfied clients who will help to generate huge profits (Chen, Ma and Wu, 2019).
If trade credit will be extended then how it will be ensured that firm is paid by all its customers
If the trade credit will be extended then the firm will keep detailed information of all the
clients so that they could be contacted in the due date. Apart from this, trade credit extension will
be provided to those clients who are making all their payments on time since last few months.
They may get failed to make payments on time because of some issues so only those clients will
be provided with the facility of trade credit extension.
Which method will be used to account for those who fail to pay
If the debtors get fail in making payments then different types of methods are used by
companies. In Waitrose limited allowance for uncollectible accounts method will be used for this
purpose.
QUESTION 2
Computation of uncollectible amount from debtors
Journals entries:
Particulars Debit Credit
a. 1% of total sales is uncollectible
Bad debts a/c Dr. 11520
To account receivables a/c 11520
b. 1.5% of credit sales is uncollectible
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Bad debts a/c Dr. 12960
To account receivables a/c 12960
c. Allowance of 12000
Bad debts a/c Dr. 12000
To Allowance for doubtful debts a/c 12000
Allowance for doubtful debts a/c Dr. 12000
To account receivable a/c 12000
Calculation of uncollectible amount for first option:
Total sales = 1152000
Uncollectible amount = 1% of total sales
= 1152000 * 1%
= 11520
Calculation of uncollectible amount for second option:
Total sales = 1152000
Credit sales 75% of total sales so it will be 1152000 * 75% = 864000
Uncollectible amount = 1.5% of credit sales
= 864000 * 1.5%
= 12960
QUESTION 3
Explanation of the receivable turnover calculation and the way in which it is used
Receivable turnover calculation is an accounting method which is used for the purpose of
analysing that entity is able to receive all its owed amount on time or not. While calculating it
credit sales is divided by the average accounts receivable (Nelly and Toni, 2020). It is used by
most of the companies to analyse the time period in which the total owed amount will be
received by the organisation for the goods that are sold on credit. It can also help to determine
the way in which the enterprise is managing the credit which is extended to the clients.
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REFERENCES
Books and Journals:
Chen, S., Ma, H., & Wu, Q. (2019). Bank credit and trade credit: Evidence from natural
experiments. Journal of Banking & Finance. 108. 105616.
Nelly, N., & Toni, N. (2020). The Effect of Treasury Turnover, Receivable Turnover, Working
Capital Turnover and Current Ratio against Profitability Registered Food and Beverage
Companies in Indonesia Stock Exchange for the Period 2013–2018. Budapest
International Research and Critics Institute (BIRCI-Journal): Humanities and Social
Sciences. 3(3). 1847-1859.
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