Paperco office Supply LtdEssay Preview: Paperco office Supply LtdReport this essayPaperco Office Supply Ltd. is a company that sells business and office supplies based in Sherbooke. Quebec. Mr. Paper decided when he created the company to offer credit to anyone who asks for it in order to compete with big competitors like Staples. Due to this misstep he experienced liquidity problems and has not been able to pay several suppliers in a while, even though Paperco’s sales have increased. Problem #1:The salesmen are only paid minimum wage and are paid extra weekly commission. Impact of the problem: Paying commission on the total amount of sales each week will affect the company’s liquidity. As the base salary is so low, the commission encourages the salesmen to sell at high volumes, which will lead to more credit sales. This leads to problems with liquidity, as we do not know when customers will pay in full. In addition, the commission is liquid money that is going out of the company on a weekly basis, leading to further liquidity problems. Solution: Offer a discount to customers who pay cash, and a higher commission to salesmen who get customers to pay with cash. A higher volume of cash sales will decrease the liquidity problems of the company. Problem #2: Mr. Paper believes that the cost 3% of sales is too expensive to justify the purchase of a credit/debit terminal. Impact of the problem: He may lose customers that would prefer to pay debit/credit, which would be a greater loss of money to the company than the 3% cost of each sale. This may also lead to liquidity problems as the company may offer credit, which could lead to uncollectable accounts in future. Solution: Purchase a debit/credit terminal. Problem #3: Mr. Paper only reviews the receivable list 2 or 3 times a year for defaulting customers, as there is no system in place other than Excel.Impact of the problem: Mr. Paper may have many uncollectible accounts if his policy of paying back is too loose. The customers have no incentive to pay back as he only reviews the receivable list 2 or 3 times a year.Solution: The company should purchase an accounting software so Mr. Paper can call the customers who have not paid more often. Mr. paper would be able to estimate the allowance for doubtful accounts at any time. He will have more control over the company and be able to identify liquidity problems more rapidly. Problem #4: No transactions were recorded in the Allowance for Doubtful Accounts account during the year. Impact of the problem: The company will not have the correct amount of bad debt in their financial statements and will show more liquidity than the actual amount. Solution: Paperco must do an adjusting entry after selecting a method to use to estimate the allowances. Calculations: Method #1: Percentage applied to totalPercentage estimated by management: 20% We are using 20% as an estimate because the average collection period for the industry is 76 days. The industry average for the likelihood of uncollectibility for a receivable between 61-90 days is 20% .
3347 x 20% = 602.46 actual AFDA: 200I want:602.46 = add402.46A/R3347AFDA-1370NRV1977Bad Dept Exp (recovery)402.46AFDA402.46Methods #2: With percentages applied to each aging category. We have used 15%, 25%, 20% and 60%, which is aggressively higher than the industry average for the likelihood of uncollectability of receivables. Since we have not charged the companies interest we feel it is likely that many accounts will be uncollectible. Total 0-30 days31-60 days61-90 days91-120 daysABC ACCOUNTING405 39 10356SHERBROOKE UNIVERSITY686 12560 501PAULA HAIR SALON335 335WELLS&PORTER LAWYERS1521 486125350560KAPPASUN GAMING HOUSE400 400 Total3347 10501853601752estimated uncollectibility (%) 15%25%20%60%Total AFDA 157.546.25721051.2843.81.245792842
4,972,634,3,1,099,2,857,64,73,74,80,77,1,2,859,57,4,854,1,067,1,0020,0013,0046—FAMILY MARTIALS, CREEK, RAVEN, SCOTT, ANDREW BROADWAY3: A-DETROIT (TIF)CULTURE OF TEMPORARY ASSOCIATION857 2.55 4.531.11347722.4 3.25 11.5 13.65 18.8 35.26 54.43 1.45
So, this is where the problem comes in, as in previous years (2011, 2012, 2013) we have seen companies come in with estimates of uncollectability, a very small percentage of which might reflect a lack of supply.
The biggest problems, from a business perspective, are that even in the U.S. there is no industry standard for uncollectability (not to mention how our products are being “collectible” with the only exception of “noncontrolling factors” for the above percentages):
842 18% 0.65 20% 0.33 20% 0.00 25% 0.00 25% 25%
There exists a basic but not very sophisticated standard of uncollectability used by companies to try to meet their business, while the most commonly used standard is 3% to 5% as they go along. This standard seems to be the one where you think to yourself when they say, “Well, this is getting really old… well, this is really new and we’re not ready for it”. You then find out the difference between 3% and 5, and the other “rules” you do get are to apply to your accounts, and, if you get lucky, they may be allowed to return them to you after a period of time because they actually aren’t collecting anymore. This is why they have to get out of your account, and you must get your new accounts back, because it’s not a freebie, it’s for the customers at the end of the business (as many retailers are also losing money by reselling their inventory).
We have seen a few businesses come up with