credit and collection

• Collections 


  is connected to the term credit. Generally it refers to the current period's sales and the credit sales of the last period combined
• A credit contract is a legal agreement whereby one party loans funds to another. The terms of the contract specify the amount lent, the payback date and the interest rate on the loan.
• A commercial letter of credit


  guarantees payment for goods to a seller delivered to the bearer of the letter upon presentation of satisfactory documentation by the seller.
• An irrevocable letter of credit 


  guarantees payment by the issuing bank as long as the beneficiary meets the terms specified in the document
• Transferrable letter of credit


  allow the original beneficiary to transfer the letter of credit and its guarantee of payment to a third party, who then becomes the beneficiary.
• A back to back letter of credit


  uses the first letter of credit as collateral for a second letter of credit, which the beneficiary issues to the actual supplier of merchandise or service
• A revolving letter of credit


  allows the beneficiary to draw on the specified amount of credit for a specified number of times, the issuing bank restores the credit to the original amount after each transaction.
• A sight draft must be paid when the letter is presented for payment. A time draft must be paid after a certain period of time has elapsed. In both instances, the bank is allowed the opportunity to review the letter of credit to assure its validity.
• Journal entries on the part of the business for withdrawal by the owner

  Dr-Drawing Account; Cr-Cash
• Journal entries to close drawing account to capital account

  Dr-Capital account; Cr- Drawing Account
• Journal entries to record line of credit account

  Dr-Inventory/Receivables; Cr- Line of credit
• Journal Entries to record availment from the line

  Dr-Line of credit; Cr- Cash
• An evergreen letter of credit is a legally binding document issued by a bank or other financial institution. It provides a guarantee the funds for a purchase are available, and promises money will be transferred after a shipment is complete. Normally it is for a long-term contract.
• Journal entries to record a loan to another individual or entity

  Dr-loans receivable; Cr-Cash
• Journal entries for collection of a loan

  Dr-Cash; Cr-Loans receivable
• Journal entries to take up an income in the business

  Dr-Interest receivable/cash; Cr-Interest income
• Journal entries to record receipt of interest income

  Dr-Cash; Cr-Interest income
• Journal entries to record current portion of long-term debt

  Dr-Loans payable long term; Cr-Loans payable short term
• In the case of a revocable letter of credit, it is possible that the obligation to pay may be revoked or modified at any time or for any reason. An irrevocable letter cannot be changed without agreement by all of the affected parties.
• A letter of credit is a contractual promised by a bank that a buyer's obligation to a seller will be made in full and in a timely manner. It become especially important in the course of international trade, where payments can be slow.
• Credit


  One of the unique features of our business system is that it operates to a large extent on promises
• Nature. Credit is akin to a two-way street. The sale of a good or service on the basis of deferred payment gives rise to the existence of a credit transaction involving two parties, the creditor and the debtor. For every debtor, there is a creditor and vice versa.
• Credit


  In commerce, it pertains to "an exchange transaction" as already indicated in a foregoing discussion
• The credit is generally called as the lifeblood of business.
• Advantages of Credit

  1. Credit facilities and contributes to the increase in wealth by making funds available for productive purposes
• Advantages of Credit:

  • Credit facilities contribute to the increase in wealth by making funds available for productive purposes
  • Credit saves time and expense by providing a safer and more convenient means of completing transactions
  • Credit helps expand the purchasing power of every member of the business community, from producer to the ultimate consumer
  • Credit enables immediate consumption of goods, thereby providing for an increase in material well-being
  • Credit helps expand economic opportunities through education, job training, and job creation
  • Credit spreads progress to various sectors of the economy
  • Credit makes possible the birth of new industries
  • Credit helps buying become more convenient for customers
• Disadvantage of credit

  • Credit at times encourage speculation
  • Credit also tends to contribute to extravagance and carelessness on the part of the people
  • Because of credit, many entrepreneurs resort to over-expansion
  • Credit causes one businessman to be dependent upon others
• Credit


  It is the lifeblood of business
• Interest


  The charge for the use of money loan
• Credere (Latin word of credit)


  It means to trust
• Suffering of a loss by the lender
• Barter


  The direct exchange of one commodity for another
• 
  

  Transfer of goods, services or funds giving the rise to obligations that must be discharged in the future
• Use of documents


  Evidence in the existence of credit transactions between the Creditor and Debtor
• To have lost the chance of gain through lending money
• false


  The grant of credit does not entail the use of documents
• T or F

  Credit system to continue its existence and attain a healthy growth and development, it is not necessary that it should anchored in strong pillars.
• True


  
  

  A fall in the value of the money may injure the creditor
• True


  
  

  A rise in the value of money harm the debtor
• True


  Extending credit always involves a risk for the lender