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The Impact Of Accounts Receivable And Inventory On Profits

2009/4/29 14:35:00 42079

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To analyze the impact of accounts receivable and inventory on profits, we should first understand the basic composition of profits.

Profit itself is a broad concept.

It has different concepts such as main business profit, operating profit, net profit, distributive profit and undistributed profit, and of course, it can be further subdivided.

Under normal circumstances, the main business profits are the main source of profits for the company.

Accounts receivable and inventory mainly affect the main business profit indicators, and of course, there are some accounts receivable other than business activities.

How does accounts receivable affect profits?

Accounts receivable indicate that the company has delivered products or services, but have not received the corresponding amount or labor and property measured in money.

Its changes can directly lead to changes in the main business income, thereby affecting profits.

Therefore, mastering the method of accounts receivable analysis helps to grasp the information of the company's annual reports accurately, and is of great significance to identify whether the company manipulate profits.

The analysis of accounts receivable is mainly to confirm whether the actual data in the annual report conform to the objectivity principle in the company's operation and the relevant accounting system requirements.

If the company falsely invoices at the end of this year, the company will increase its receipts while increasing its revenue. In the coming year, it will be rushed back in the name of quality inconformity.

This has resulted in a sharp increase in operating income this year, thereby increasing profits.

In addition, if the company pfers the assets that have been lost into other receivables, it will increase profits if the losses are not reflected.

In addition, the company should make provision for bad debts in accordance with the age of accounts receivable, or increase or decrease profits if less or more bad debt reserves are required.

Many enterprises know that certain accounts receivable of old age have become bad debts, but they do not write off in order to increase profits, or to raise reserves for concealment of profits.

The use of accounts receivable to manipulate profits can be identified through the following ways.

1, if the sudden business revenue corresponding to accounts receivable should be generated at the end of the year, we should know more about it and judge whether the enterprise has used the skills mentioned above. For old age accounts receivable, we should eliminate it in the analysis; the balance of other accounts receivable should not be too large, otherwise we should start with the detailed list of other accounts receivable and other accounts payable to identify whether there is profit manipulation.

2, with two indicators to judge: credit sales ratio = accounts receivable / main business income, if compared with normal past years, the ratio is higher or larger, indicating that the company's main business income mainly depends on accounts receivable, or the main business income has great uncertainty, the company may face great risk of bad debts.

At this point, we should look at another ratio: the ratio of accounts receivable recovery = the cash / average receivables received from sales of goods and labor services, if the ratio is very low, it indicates that the actual return rate of accounts receivable is also very low. In this case, enterprises may have invented sales volume.

How does inventory affect profits?

Inventory refers to the finished products or commodities that are held for sale in the normal production and operation process of a company, or to sell materials or materials that are still in production process, or will be consumed in the production process or providing labor services, including raw materials, products, inventory commodities, low value consumables, commissioned processing materials, etc.

Generally speaking, inventory accounts for a large proportion of the total assets of enterprises, and the varieties, quantity and specifications are numerous and miscellaneous, so it is not easy to verify, and the stock can affect the profits of enterprises through the main business cost, so the possibility of being manipulated by enterprises is relatively large.

The following basic methods can be used to identify the impact of inventories on profits.

The first is to change the inventory valuation method.

When the stock price is rising, the last in first out method is to put the highest price of material into account, so that the cost of the current period will rise and the current profit will be reduced. If the first in first out method is adopted, the material at the lowest price will be accounted for, so that the cost will be reduced and the current profit will be increased.

If inventory prices are in decline, the opposite is true.

Enterprises can adjust the current profit level by changing the inventory valuation method.

However, the new accounting standards, which will be formally implemented in 2007, cancel the last in first out method, requiring all the enterprises to adopt the first in first out method, so that all enterprises' current costs are reflected in the actual historical cost, and there is no artificial adjustment factor.

Two, improper inventory valuation.

For example, by raising the unit price of finished product warehousing, selling more products and selling less profits, not dealing with deteriorating scrap, high quality, long-term backlog of inventory, reducing stock depreciation allowance and increasing profits; regulating profit by using material cost variance; taking profit arbitrarily as needed; physical movement and accounting accounting are divorced; finished products have been issued a few years ago, or even some have become dead ends accounts. However, because the accounts receivable do not receive any reflection and treatment, the sales revenue of the confirmation can not be confirmed, and the inventory is not serious enough to increase profits.