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Accounting HELP!!! Will different gross margins impact on the accounts receivable subsystem?
Will products with different gross margins and pricing structures impact on the accounts receivable subsystems, particularly the credit policy?
I need a FULL DETAILED answer for this question quickly as I'm doing this for a school assessment. Please don't go too overboard and be TOO detailed as I'm only a high school student!
But I need to just mainly understand why it won't/will impact on the credit policy in particular and be able to explain it.
Thanks in advanced.
1 Answer
- ?Lv 79 years agoFavourite answer
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1. Gross margin is the proportion of gross profits to sales.
2. Receivables means outstanding balance of goods sold on credit (ie, for which payment will be received later).
3. Credit sales block the funds of a business entity. Funds have a cost as the company has to borrow the money on which it will have to pay interest.
4. Coming to the question, there is no direct relation between gross margin and receivables.
5. However, if a product has a very thin gross margin, the business entity may prefer to sell that product on cash basis to save the cost of interest. In that case, gross margin may impact on credit sales (receivables). This is not, however, totally in the control of a seller, as the seller may have to go by market price, as, otherwise, it may lose business.
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Source(s): . Experience.