Current accounts-METHODS OF CALCULATING INTEREST

The current accounts of the balance of payments refers to transactions in goods and services, income and current transfers. In other words it covers all transactions between residents and nonresidents other than financial items.

An account current is a statement, in debit and credit form of the various transactions that have taken place between two parties during the particular period interest being usually calculated on each rate and included in the account, it is nothing but a copy of one's account in the others ledger with the addition of interest, the calculation of interest being shown in an additional column. The account current is usually rendered: By a consignee to this consignor. By an agent to his principal. By one partner in a joint venture to the other. By a banker to his client. By a lender to the borrower and By head office to its branches. An account current when rendered is styled by the name to the person whom it is rendered in addition to the name of the person who renders it. The name of the party rendering the current accounts is mentioned after the name of the party to whom it is rendered.

METHODS OF CALCULATING INTEREST

 There are three ways of calculating interest. They are as follows: By tables - Interest is calculated by tables from the due date of each transaction to the end of the period of the account on each item separately. The calculation can be done independently or the amount of interest of the particular amount for the number of days in question can be taken from interest tables. Interest columns on both sides of the account will then be totaled and the balance will be called out to the principal amount. By products - Under this method the amount of each item is multiplied by the number of days from the date to the end period and the products are placed in the product column especially provided on each side of the account. At the end of the period the products on each side to the current accounts are added up and balance. Interest is calculated on the balance of the product for one day in the amount column on that side whose product is greater. By interest number - This is merely a variation of the product method. Each product is divided by 100 and the quotient called interest number, is entered in the special column. The number columns are then balanced and interest on the balance of the number is extended into the account.

CALCULATION OF DAYS In recognizing the number of days for interest the date to the transaction is usually not taken into account. This means either the day on which the transaction is effected or the day to which the account is made up is not included.

MERCHANDISE TRADE

Merchandise trade represents exports and imports of commodities. The credit in the merchandise represents exports and debit represents imports. The net balance being the difference between exports and imports is known as the balance of trade. The values of exports are free on board prices i.e., excluding the cost of transportation from abroad. Imports represent cost insurance freight i.e. including freight and insurance paid for imports. However where freight and insurance on imports are paid separately to foreigners these are included under transportation and insurance.

 INVISIBLES

Invisibles include services, transfers and investment income. It is titled invisibles to distinguish from merchandise trade also known as visible trade. Travel covers expenditure incurred by non-resident travelers during their stay in the country. It excludes international passenger services, which are included in transportation. Debit entries represent exchange sold for private and official travel. Transportation covers all receipts and payments on account of international transportation services except for the freight on imports invoiced cost insurance freight included under import payments. The credits include expenses of foreign transport companies and other receipts. The debits include expenses of payments to foreign transport companies. Insurance covers all receipts and payments relating to all types of insurance as well as reinsurance. Government not included elsewhere relates to receipts and payments on government account not included elsewhere as well as receipts and payments on account of maintenance of embassies and diplomatic missions and offices of international institutions such as UNO, WHO. Credits include allocations made for the US embassy expenditure. Miscellaneous items cover receipts and payments in respect of all other services such as agency services technicians and professional services technical know how royalties subscriptions for periodicals. Transfer of payments or unilateral transfers represent all receipts and payments without a quid pro quo. They include items like aid and grants received from or extended to foreign governments migrants transfer repatriation of savings remittances for family maintenance contributions and donations to religious organizations and charitable institutions. Investment income relates to remittances receipts and payments on account of profits dividends interest and discounts including interest charges and commitment charges on foreign loans including those on purchase from the international monetary fund.

BALANCE ON CURRENT ACCOUNT

 What are important for decision making is not the absolute figures of exports or receipts and imports or payments but their difference which allows whether the country has earned or lost foreign exchange. Two important measures in this regard are

(a) balance of trade and

(b) balance of payments.

(a) Balance of trade refers to the net difference between the value of export and import of merchandise or the visible trade. When the aggregate exports of goods from the country during the period exceed its aggregate import the balance of trade is said to be favourable or excess or positive. If the imports go beyond exports the balance of trade is unfavourable or deficit or negative. Since imports and exports of a country seldom equal the balance of trade will not ordinarily balance. During any given phase the balance of trade will show either a favourable or an unfavorable balance.

(b) Balance of payments includes the foreign trade in its broad sense and includes not only visible trade but invisible items also. Thus this term is more comprehensive than balance of trade. In other words, balance of payments represents balance of trade plus balance on invisibles. It would be more appropriate to call this balance of payments on current account as it includes the net balance of all items included in the current account. As in the case of balance of trade the total amounts receivable and payable on current accounts do not balance and the balance of payments for a given period ends up in a favorable surplus or unfavourable deficit balance.

Accounts receivable program- Being Aware Of Hidden Dangers

The thought of financing accounts receivable is simple . Moreover, a simple interest-only loan, assured with a UCC-1 lien, is constituted against the price of accounts receivable of a business. And loan profits are distributed to the business proprietor who invests them into either an annuity agreement or life insurance plan. Also a lender may perhaps obtain a lien against the annuity or life insurance policy as a further protection. Accounts receivable program financing has two principal goals .

First is the financial goal of bringing forth further income by merchandising with compounded tax-deferred profits gained in annuity or life insurance policy against the simple interest remunerated on loan beside the receivables. In addition, further goal is to keep the accounts receivable by efficiently equity stripping the asset by means of UCC-1 lien. On the economic part, these programs include the possibility of making considerably more funds for a business proprietor than if he did nothing.

Furthermore, on asset security side, these programs offer to get rid of from a creditors reach what would otherwise be a very simple asset to collect . One more method to look at these programs is that they provide free asset security and some earnings too! And nowadays several programs provide accounts receivable financing, and innovative programs are coming on line at a monthly fee. On the other hand, life insurance agents and economic devisers, and persons who are aggravated by the prospects of juicy commissions brought forth from the auction of annuities or life insurance policies, are quickly being mobilized to take up these programs to their customers.

 Being Aware Of Hidden Dangers:

 The fact is that Accounts receivable program can work out but at any rate several things should happen for these programs to labor effectively for a business proprietor. Remember, although some programs do not create any sense at all other than potentially offering up a death benefit if the business proprietor passes away too early. And original loan should be competent, meaning that it have to be at a sufficiently low interest rate that arbitrage will take a chance of working out for business proprietors. Almost all of the programs will make use of a variable rate that is attached to liBOR or a prime bank rate, plus an additional 0.5% to 2% for the program administrator s income. But a difficulty with variable rate programs is that, if rates go high, the business owner may not be able to support the interest payments.

Additionally, a business proprietor should contain an exit policy in the occasion that payments would become too burdensome. Almost all programs are planned to keep the lender, and caring the interests of a business proprietor is a second thought. Likewise, the selling materials of a lot of programs obviously converse about the suspected asset protection benefits and these marketing materials only will probably create the program susceptible to a creditors challenge based on deceitful changes . Superior programs will hardly point out asset protection and will concentrate on the economic benefits. In addition, the arrangement should be competent from a tax viewpoint or else arbitrage will not work. And if interest payments on the loan are not deductible by big business, the program will be considerably less competent. Several programs are carelessly planned so that there is little possibility of interest payments being deductible while the loan is fully collateralized by financial goods and Accounts receivable program is not actually in danger.

Moreover, some programs may perhaps cheat on tax consequences when it is provoked, which could simply eat away the part of any profit. This program all together should beat the opportunity cost as though business proprietor had not financed the accounts receivable but rather had invested the interest payments that would have been remunerated to the lender, into similar annuity or life insurance goods. Therefore if the loan, tax and product all work together proficiently, result will also be positive. Successful Effectuation: These are just some of the troubles with accounts receivable financing plan. New programs will bring in new features and chances, and, as a result new problems will arise.

However, when accounts receivable financing works accurately it would become a great vehicle for business owners in order to raise their retirement earnings in addition to protect a very susceptible asset. Additionally, there are a number of keys to create a program to work properly but the most significant thing is to have a lawyer who is well-known with these programs. He should cautiously evaluate the lenders documents to ensure whether the business owner s interests are secured or that the numbers create sense in due course. It is possibly as significant to contain an insurance broker or financial contriver who is qualified with these programs and who can give advice about the products that work or do not work and can then devise an annuity or life insurance policy appropriate to the business owners particular requirements. One more key to the successful implementation of an Accounts receivable program is that it would be firmly incorporated with an overall and integrated business, estate, and asset security plan.

Accounts payable best practices-Accounts payable processing is being affected by the fraudulent activities that have emerged in the recent years.

Generally, practices that produce most favorable business results as compared to first-class industry leaders are said to be the best practices. These best practices help in improving and accomplishing positive results. Therefore, the practices of a company in controlling its accounts payable processing influences the companys cash flow and supplier relationships . These are considered to be the two important issues responsible for the growth of the company.

Naturally, every company strives to apply Accounts payable best practices in controlling accounts payable with the intention of contributing positively to cash flow and bearing jointly beneficial relationships with suppliers. The hope between a company and its suppliers seems to be shaken by accounts payable actions there by upsetting supplier relations. On the other hand, paying your bills on time improves your relationship with the supplier. An improved relationship with suppliers is essential to a company since they supply priceless trade credit, and also offer ideas for new methods and products, which are considered as important role in customer service. Best Practices Execution: The execution of best practices in account payable enables a company to control its accounts payable activities with the following advantages. The advantages include the,

(1) Recompense of bill on a fixed schedule of the company\'s choosing,

(2) Guarantee the correctness and genuineness of statements that the company pays, and

(3) Enables to carry the process involving less paperwork and at minimum expense. Todays modern accounts payable operations have stipulated and simplified their procedures.

A number of new and advanced technologies have stepped in, and thus facilitating the computerization in almost every accounts payable transaction. The new technologies include the electronic invoice presentment payment (EIPP) and electronic funds transfer (EFT). As a matter of fact, organization have acknowledged the importance of accounts payable professionals and their important role in achieving financial goals by shifting focus from transaction-oriented processes to value-adding activities. In recent years, most of the high-flying companies have started using advanced technology making payments. Some of such are the EFT tools, computer-assisted audit techniques (CAAT) and antifraud measures to check and prevent illicit accounts payable transactions. Some other companies do seek to rationalize or eliminate steps in accounts payable transactions, such as invoice processing. In spite of all this advanced mechanization, companies still strive hard in maintaining good relationship among the various faculties. Further, companies also focus and make progressive steps towards supplier communications, payment timing, and fraud prevention. In addition, steps are taken towards controlling organizational initiatives, like regulatory compliance and internal control efforts.

Some Best Practices: Following are some best practices found useful in managing your Accounts Payables.

1. Manage payment timing and terms to maximize cash flow . Every company would like to manage their accounts payable process in order o maintain their cash flow objectives. By this they plane to accomplish unbiased or constructive cash flow with the assurance of their cash being paid out at a rate equal to or slower than the rate at which cash is collected. Their objectives are achieved by negotiations that first subdivide the dealer base according to some factors such as dollars spent, transactional volume, and risk of disruption to the supply chain. However, the subdivision points out which dealer might present constructive opportunities to confer new terms and conditions that might help in posing deplorable risks. All these efforts on the part of the dealers help finance managers to work with purchasing or strategic sourcing departments to plan the pitch requirements for more positive payment terms to the appropriate suppliers.

2. Automate or eliminate steps in invoice processing. It is a fact that many a number of accounts payable best practices professionals are burdened with an increasing number of statements with constantly abridged income. Moreover, these high flying companies power up the existing technologies, such as optical character recognition (OCR) and work-flow systems, in order to digitize statement documents. In a way this helps to lessen errors connected with manual statement processing and increase processing efficiency.

3. Maintain an open line of communication with suppliers . Even though the automation of accounts payable has caused lots of advantages, the process still remains to be a relationship-based business. Therefore, maintaining an open line of communication with suppliers helps many leading companies along this line. These companies evaluate their dealer base regularly, centering on the import of the purchase and the supply risk. Accordingly, they segregate dealers into different service categories that help strategic discussions in developing relationships according to the risk and value criteria of the companies. These categories are non-critical, leverage, bottleneck, and strategic commodities.

4. Boost fraud prevention and detection measures. Accounts payable processing is being affected by the fraudulent activities that have emerged in the recent years. These activities have seen an increase in recent years, due to the increase in the number of criminals who learn to penetrate Accounts payable best practices systems and make illegal transactions. Therefore, there arises a need for the companies to protect themselves against these increasing fraud techniques from unauthorized use of p-cards to illegal electronic fund transfers. Also, these activities lead the company in to misstate liabilities in their financial reports