THE EFFECTS OF MANAGEMENT OF ACCOUNT RECEIVABLES ON THE PERFORMANCE OF GOVERNMENT PARASTATALS (A CASE STUDY OF ENUGU STATE WATER COOPERATION)
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THE EFFECTS OF MANAGEMENT OF ACCOUNT
RECEIVABLES ON THE PERFORMANCE OF GOVERNMENT PARASTATALS (A CASE STUDY OF ENUGU
STATE WATER COOPERATION)
ABSTRACT
This
research work surreyed the effect of Account Receivable in the management of
government parastatals, with particular reference to the Enugu state water coperation this research work endeavoured
to probe into where the problems lie. The objective was to find out the effect
of these accounts receivables. The financial record of the Enugu state water
corporation (ESWC) was obtained to compare its accounts receivables with the
total revenue greeted by that paraststal over a given period. It was the
opinion of the researcher that since various governments regulate the functions
of their parastatals by not allowing full commercialization, those governments
should line up to their own obligations by remitting adequate statutory duties
of rendering services to the populace.
Table of
contents
Title
page
ii
Approval
page
iii
Dedication
iv
Acknowledgement
v
Abstract vi
Table of
contents
vii
CHAPTER
ONE:
INTRODUCTION
1.1 Background of the study 1
1.2 Statement of the problem 2
1.3 Objectives of these study
3
1.4 Hypothesis
5
1.5 Research question
6
1.6 Significant of the study 7
1.7 Scope of the study
9
1.8 Limitations of the study 9
1.9 Definition of terms
10
CHAPTER TWO:
REVIEW OF
RELATED LITERATURE
2.1 The concept of account receivables 11
2.2 The objectives of accounts receivables
management 14
2.3 The concept of bad debts
19
2.4 Credit procedures for individual
customers 21
2.5 Analysis credit risks
23
2.6 Credit policy
26
2.7 Accounts receivables managements 33
2.8 Summary 35
2.9 Corporate profile
37
CHAPTER
THREE:
METHODOLOGY
3.1 Research design
45
3.2 Area of study
46
3.3 Population of the study 46
3.4 Sampling method
47
3.5 Research instrumentation 49
3.6 Sources of data
49
CHAPTER
FOUR:
PRESENTATION
AND ANALYSIS
4.1 Presentation and analysis of data 51
4.2 Test of hypothesis
53
CHAPTER
FIVE:
SUMMARY OF
FINDING, RECOMMENDATION AND CONCLUSION
5.1Findings
67
5.2 Conclusion
69
5.3 Recommendation
71
References
73
Appendices 75
LIST OF
TABLE
Table 4.1
distribution of questionnaire 53
Table
4.3 Staff respondents 54
Table
4.4 default of payment of water
bill 56
Table
4.5 level of service rendered by
ESWC 59
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
According to
Ajasa (2007), many business organizations in Nigeria have experienced liquidity
problem largely because of the effects of the high inflationary rate. This has been necessitated by the various
economic measure introduced in the country ranging from auxsterity measure
introduced in 1982 to the structural adjustment program and the deregulation of
the economy. As a result of these, it then becomes more necessary than ever to
get money promptly from trade debtors for the day-to-day operations, because of
uncertainty in the fluctuations of prices.
He further
suggests that if all trade transactions were to be made on cash basis the
companies in Nigeria would hardly do well in terms of sales turnover. This
results form the fact that at the time of consumption, the liquidity position
of the consumers may be such as not to allow the availability of enough cash to
make on- the – spot payments in cash for such goods and services to be consume
now and to pay at a later date, resulting in accounts receivable.
According to
Bass (2006) accounts receivables represent claims usually stated in terms of a
fixed amount arising from the sale of goods, the performance of service, the
lending of fund or some type of transactions which establish relationship
whereby one party is indebted to another. These claims result from the sale of
goods or services and are sometimes neither supported by a written note or
secured by specific collaterals. In that case, creditors have no right to lay
hands on specific assets.
1.2 STATEMENT OF THE PROBLEM
Despite the
indispensability of water to mankind and the amount of investment by state
governments, water in urban and some rural areas has been a very scarce
commodity yet its consumption rate has not abated.
The issue of
water has become a very strong slogan for politicians and they use same in
building the political manifestoes. The electorate on the other hand are always
respectable to mere promises of better water facilities, there is still an
unwillingness to pay bills. Water managers accuse both the consumers and
government of deliberate refusal to co-operate in making their dream a reality.
Government parastatals most of the time end up with a large amount of debts.
This
research therefore looks into the perennial problem of water in Enugu State,
with particular reference to Enugu Urban, to find out the effect of accounts
receivables make on the performance of the Enugu State water corporation.
1.3 OBJECTIVE OF THE STUDY
This study
seeks to achieve the following objectives:
· To find out the cause of the
irregularities and lack of payment of water bills.
· To find out the reason for the huge
amount of debts in the financial statements of the Enugu state water
corporation.
· To find out the effect of accounts
receivables in the performance of government owned parastatals but with
particular reference to the Enugu State water corporation.
· To determine if the guidelines and
practices of the Enugu state water corporation, with reference to the
management of accounts receivables is in conformity with sound theoretical
principles and policies as provided by theoretical framework.
· To recommend workable solutions that
might minimize the problems and thereby enhance the effective management of
account receivables in most government owned parastatals.
· To make any other suggestions that
would lead to the solution of the perennial water scarcity in Enugu State Water
Corporation.
1.4 HYPOTHESES
1Ho: The level of accounts receivables does
not affect the services and operating income of the Enugu state water
corporation.
Hoi:The
level of accounts receivables does affect the service and operating income of
the Enugu State water corporation.
2Ho: The delay or default in the payment of
water bills by consumers is NOT connected with the efficiency of services
rendered by the Enugu State water corporation.
Hi: The delay or default in the payment of water
bills by consumers is connected with the efficiency of services rendered by the
Enugu State water corporation.
3Ho: The level of services rendered by Enugu
State Water Corporation is NOT a resultant effect of poor management of the
accounts receivables.
Hi: the level of services rendered by Enugu
State Water Corporation is a resultant effect of poor management of the
accounts receivables.
4Ho: An improper working condition does
NOT influence the incidence of account
receivables.
Hi: An improper working condition does influence
the incidence of accounts receivables.
1.5 RESEARCH QUESTIONS
For this
research work to be effective, it pleases the researcher to ask the following
questions:
1. Do you think that the level of
accounts receivable affects the services and operating income of Enugu State
Water Corporation?
2. Is the delay or default in the
payment of water bills by consumers connected with the efficiency of services
rendered by Enugu State water co-operation.
3. Is the level of service rendered by
Enugu State water co-operation affected as a result of poor management of
account receivables?
4. Does improper working condition
influenced the incidence by account receivables?
1.6 SIGNIFICANCE OF THE STUDY
The
incidence of bad debts in government owned companies is quite enormous and it
is on the increase. As a result. It becomes really necessary to look into the
matter.
As a matter
of fact, this debt problem is coming in all fields of commercial endeavours.
This suggests that this consequently enhance gross domestic product of the
nation.
This work is
intended to show the importance of effective and efficient accounts receivables
management in the performance of business organizations to all those in charge
of credit management incomes. It will signify dangerous effects of improper
management of accounts receivables. In addition, the important of consumer
awareness interest and perception of debt management will be highlighted. The
awareness of the obligation that consumers own to the survival of government
owned companies will be created, thus fixing consumers relationship which is
ideal for growth and more efficient operations.
In this era
of privatization and commercialization of public enterprises, this study will
serve as a useful guide to investigations to the extent that it exposes the
viability of government owned companies.
The
management owned companies will also find this work useful. This is due to the
fact that they should also be interested in finding solutions to reduce and
eliminate the huge book debt owned through consumers credits. This research
work will expose them to ways of achieving the organizational goals.
Finally,
apart form the fact that this research will provide a concise inventory or
reference materials that will aid the financial manager in credit management,
it will also provide a valuable sources of information and serve as a basis for
future research study in the libraries of both the department accountancy and
that of the institute of management and technology, Enugu.
1.7 SCOPE OF THE STUDY
This
research work covers the credit management policies and practices of the Enugu
State Water Corporation with particular reference to the Enugu urban districts.
It does not cover the total accounts receivables as prepaid expenses, loans and
advances to staff, but is restricted to the consumer accounts receivables
usually found in the corporation records as commercial debtors.
This
research looks into the activities of the Accounts and Commercial Departments
of the Enugu State Water Corporation as regards credit and management practice
and policies in ensuring that receivables are kept to a minimum. It also
examines the contributions of the customers to the incidence of accounts
receivables.
1.8 LIMITATIONS OF THE STUDY
The
limitations of this study are that time and money constraints restricted it to
only Enugu Urban Districts. Also, Current Annual performance reports of the
Enugu State Water Corporation were not available. Only the audited published
accounts for 1992 and 1993 were available and scanty records of 1994/95 which
are still unedited.
Finally,
because of the limited amount of literature on this topic, only a few authors
were taken into consideration in the literature review.
1.9
DEFINITION OF TERM
BAD DEBT:
This is defined as money owed to you that you can’t collect
DEBT
RECOVERY: This is also called a debt settlement, usually takes place, when a
debtor is unable to pay the debt and the attempts of the creditors to take back
his money have failed.
DEBT CEILING:
this is the maximum amount of monies the united state can borrow. The debt
ceiling was created under the second liberty bond act of 1917. It is also known
as the “Debt Limit” or “Statutory debt limit”
ACCOUNT
RECEIVABLES: This is defined as claims, usually stated in terms of a fixed
amount of money arising from the sale of goods rendering of services
ACCOUNT
RECEIVABLE MANAGEMENT: This is an account which its decision of firm is
regarding its overall credit and collection policy, and the evaluation of the
individual credit applicants.
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