What is the contribution method?
The contribution method is the way the company calculates, how many receivables with open accounts will not be able to collect. Companies that sell goods or services to the account will allow customers to repay the total fee over time. Unfortunately, some customers will never pay off their balances. If this happens, companies must write off the amount of the dollar as a lost sale. The use of the contribution method, such as the percentage of sales or a percentage of receivables, allows companies to properly explain the expected loss of receivables. The contribution represents a more true picture of the company's financial situation.
In order to correctly create the calculation of the contribution method, companies must have historical records of receivables collections. The most common way to complete the company is to monitor the age of their claims. The message will be given each open account according to the number of excellent days such as 30, 60, 90 or 120 days old. As receivables fall to older age categories, the opportunity to collect accounts usuallyit drops. The accountants go through this message and determine what percentage of open receivables is inexhaustible and then removes them according to the company's principles. This record helps to create a method of depreciation of the official post.
When using the percentage of the contribution method for sale, the company's accounting credit sales divide by the company's total sale and created a percentage of the contribution. The sale of loans usually represents a total credit sale that was not collectible over a specific period of time. To create an average percentage, accountants repeat it for several consecutive months to create the most accurate percentage of depreciation. This percentage will then be a factor that the accounting will use to determine how much of their total credit sales to write off on the basis of sale.
Another method of contribution, percentage of receivables, Similar is the percentage of the sale method. However, the accountant divides the total receivables toAccounts with historical accounts written off as unsuitable. This contribution method is often considered more accurate than the sale method. Since sales can often increase or reduce, the percentage of the contribution can also fluctuate wildly. The use of receivables as a denominator is likely to decrease these fluctuations only by the average selling of receivables every month. Companies usually employ several accountants whose task is to constantly manage the process of receivables and collection. Calculating the percentage of bad accounts using the receivable method for bad accounts is usually a common process for these accounting.