I am a proprietor of a firm called Digits-R-Us. The products and services we sell are Information Technology Solutions, creating customized digital solutions for firms and individuals, the way they want them, when they want them.
As proprietor for Digits-R-Us, I would definitely extend credit to cutomers! The reason is simple, since our company will be in the B2B and the norm of transactions in this line of business is usually sales on credit. It is also more likely for a firm to fulfil its payment obligations than it is for individuals and therefore I would expect a lower rate of uncollectible accounts than if we were dealing with individuals, hence my reason to accept to sell on credit.
I think the decision to …show more content…
Secondly, our firm will create binding contract which shall give the terms and conditions of how the credit shall be managed and treated. This shall include but not limited to, the period in whuch the credit has to be paid, penalties which shall be charged if this period is missed and also the last option of taking leagal action if all else fails.
We shall also monitor the accounts receivable constantly using the accounts receivable turnover ratio and days outstanding in order to ensure that our ability to collect debt is not falling
If the above steps all fail to yield any results in collecting the credit. My firm will then be forced to write off the credit as an Uncollectible Receivable. In order to write off debts as Uncollectible Receivables we shall use the Allowance Method for recording via an aging analysis of the balance sheet. To record the transaction we shall use the Balance Sheet approach.
REFERENCES
1. Larry Walther, L. (2012). Chapter Seven: Accounts Receivable. Retrieved October 17, 2015, from