Question

There have been many articles written on the financial impact of the Coronavirus (Covid-19), using your local economy as an example, write a short essay (no more than 500 words, 2 pages double spaced) about the impact the pandemic will have on the life cycle of receivables for local businesses. A strong essay will include impact on income statement accounts such as credit sales and bad debt estimates as well as impact on balance sheet accounts such as cash, accounts receivable, allowance for doubtful accounts, write-offs and recoveries. (20 points)

Answer 1

It is undoubetdly a tough time for all the businesses be it local/ corporates/ international. All the borders have been siezed by respective governments thereby making it difficult for transportation of goods and services.

Talking about local businesses, their livelihoods are definetly at stake. As per the survey done by Axios of about 10,000 small businesses, it is said that 51% say their businesses will only be able to operate for next 0-3 months. 96% are already feeling the impact of the Covid- 19. Talking about the lifecycle of receivables of local businesses, it is going to be tough time as productions have been very less, supply chains are not working at the optimum capacity thus making it impossible for local businesses to ge the supplies of the goods and services.

The impact of all these measures will obviously be there on income statement of their respective businesses. There is going to be definetely increase in bad debts. After a month or so, people might not have to pay back for what they bought, thereby further reducing the movement of cash in the economy overall. If like China, lockdown goes beyond 2 months or so, the survival of local businesses will be questioned. Consumers would not have the money to pay, this impacting the overall revenue for them.

So, to summarise, in hand cash will be less, receiveables, bad debts, credit sales will definetly increase owing to less demand and also less money in the hands of consumers. Allowance for doubtful accounts will also increase due to low in hand cash with all consumers.