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Monitoring Accounts Receivable Using Variance Analysis

George W. Gallinger and A. James Ifflander
Financial Management
Vol. 15, No. 4 (Winter, 1986), pp. 69-76
Published by: Wiley on behalf of the Financial Management Association International
Stable URL: http://www.jstor.org/stable/3665782
Page Count: 8
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Monitoring Accounts Receivable Using Variance Analysis
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Abstract

This articled shows the credit analyst how to use an accounting-based variance model to evaluate accounts receivable against budget. Dollar variances between actual and budgeted receivable balances are segregated into a collection experience variance, a sales effect variance, and a joint effect variance. The sales effect variance is further segregated into a sales pattern variance and a sales quantity variance. Knowledge of the contribution of each of these variances to the total variance between actual and budget balances provides insights about accounts receivable that traditional measures, such as days sales outstanding and aging schedules, are unable to reveal.

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