Final Project

Principles of Accounting
Program: BBA 2 C

Submitted to: Ma’am. Hina Samdani

MADE BY: GROUP GOLF:

Usama Abrar
Hassan Raza
Kashif Afridi
Ahsan Wasim
Sohaib Jabbar
Hussain Ali
• Sikander Malik
 AKNOWLEDGEMENT

All praise belongs to ALLAH, the Compassionate and, the Merciful, who
enables us to achieve and accomplish all of our objectives. And we
would also like to Thanks our Teacher, Mrs. Hina Samdani, who helped
us a lot.
Organization brief:

BANK ISLAMI
-The idea
The epochal idea of Bank Islami was conceptualized by Jahangir
Siddiqui & Company Limited and DCD Group in late 2003. Mr. Hassan
A. Bilgrami was appointed as Adviser to the sponsors on March 16,
2004 to formalize the idea. He presented the concept paper of Bank
Islami to sponsors on March 24, 2004. A detailed business plan was
then prepared and a formal application was submitted to the State
Bank of Pakistan on May 26, 2004. On September 26, 2005, Dubai
Bank joined the Sponsors and became one of the founding
shareholders of Bank Islami by investing 18.75% in the total Capital.

-accredit ion by State bank of Pakistan

The State Bank of Pakistan issued a No Objection Certificate in no time
on August 19, 2004 and Bank Islami Pakistan Limited, the second full-
fledge Islamic Commercial Bank in Pakistan, was incorporated on
October 18, 2004 in Pakistan.

Bank Islami Pakistan Limited was the first Bank to receive the Islamic
Banking license under the Islamic Banking policy of 2003 on March 31,
2005. The Bank envisioned to focus primarily on Wealth Management
as the core area of business in addition to Shariah compliant Retail
Banking products, Proprietary and Third party products, and Integrated
financial planning services.

-initial public offering

Bank Islami Pakistan Limited made a public offering of Rs. 400 Million,
at par, from 6th to 8th March. This was the first primary issue by a
Bank in over a decade in Pakistan. The Initial public offering (IPO) of
Bank Islami received overwhelming response from the general public
as the applications received were 9 times higher than offered, fetching
nearly Rs. 3.5 Billion, against the demand of Rs. 400 Million.
-Inauguration and Network Expansion:

The State Bank of Pakistan declared Bank Islami Pakistan Limited as a

Scheduled Bank with effect from March 17, 2006. Bank Islami started
its Banking operations on 7th April 2006 with its first branch in SITE,
Karachi. By the end of 2006, the Bank had 10 branches, nine in Karachi
and one in Quetta. The Bank further concentrated in building a
nationwide network and by the end of year 2007; its branch network
grew to 36 branches in 23 cities. In 2008, the Bank opened 66 new
branches nationwide which expanded its network to 102 branches in
49 cites. This gives Bank Islami the distinction of having the fastest
expanding network in Pakistan as well as offering the widest network
by any Islamic Bank in Pakistan.

VISION, MISSION AND VALUES OF BANK

ISLAMI
-vision
The Vision of Bank Islami is to be recognized as the leading Authentic
Islamic Bank.

-mission
The Mission of Bank Islami is to create value for our stakeholders by
offering Authentic, Shariah Compliant and technologically advanced
product and services. The bank differentiates it selves through:

• Authenticity
• Innovation
• Understanding our client's needs
• Commitment to excellence, and
• Fast, efficient and seamless delivery of solution. As a growing
institution, the foundation for our performance lies on our human
capital and Bank Islami remains committed to becoming an
employer of choice, attracting, nurturing and developing talent in
a transparent and performance driven culture.

-core values
Bank Islami is strongly committed towards its core values of:

• Product authenticity
 • Customer focus
• Meritocracy
• Integrity
• Team work
• Humility
• Innovation

BANK ISLAMI; Branch: sector I/8, Markaz

Islamabad.

Basic information about the bank manager:

NAME: ZAFAR IQBAL

POST: BRANCH MANAGER
QUALIFICATION: MBA in banking
JOINING DATE:
WORK EXPIRIENCE:
 Saudi bank: worked one year
 Standard Chartered: worked three years
 Bank Alfalah: worked two years
 Bank Islami: working for past one year
PHONE NUMBER: 0332 8536211
E-MAIL: zafar.iqbal@bankislami.com.pk

Accounts receivable
Accounts receivable (A/R) is one of a series of accounting
transactions dealing with the billing of a customer for goods and
services he/she has ordered. In most business entities this is typically
done by generating an invoice and mailing or electronically delivering
it to the customer, who in turn must pay it within an established
timeframe called "creditor payment terms."

An example of a common payment term is Net 30, which means

payment is due in the amount of the invoice 30 days from the date of
invoice. Other common payment terms include Net 45 and Net 60 but
could in reality be for any time period agreed upon by the vendor and
the customer.

While booking a receivable is accomplished by a simple accounting

transaction, the process of maintaining and collecting payments on the
accounts receivable subsidiary account balances can be a full-time
proposition. Depending on the industry in practice, accounts receivable
payments can be received up to 10 - 15 days after the due date has
been reached. These types of payment practices are sometimes
developed by industry standards, corporate policy, or because of the
financial condition of the client.

On a company's balance sheet, accounts receivable is the money owed

to that company by entities outside of the company. The receivables
owed by the company's customers are called trade receivables.
Account receivables are classified as current assets assuming that they
are due within one year. To record a journal entry for a sale on
account, one must debit a receivable and credit a revenue account.
When the customer pays off their accounts, one debits cash and
credits the receivable in the journal entry. The ending balance on the
trial balance sheet for accounts receivable is always debit.

Business organizations which have become too large to perform such

tasks by hand (or small ones that could but prefer not to do them by
hand) will generally use accounting software on a computer to perform
this task.

Associated accounting issues include recognizing accounts receivable,

valuing accounts receivable, and disposing of accounts receivable.

Accounts receivable departments use the sales ledger. Accounts

receivable is more commonly known as Credit Control in the UK, where
most companies have a credit control department.

Other types of accounting transactions include accounts payable,

payroll, and trial balance.

Since not all customer debts will be collected, businesses typically

record an allowance for bad debts which is subtracted from total
accounts receivable. When accounts receivable are not paid, some
companies turn them over to third party collection agencies or
collection attorneys who will attempt to recover the debt via
negotiating payment plans, settlement offers or legal action.
Outstanding advances are part of accounts receivables if a company
gets an order from its customers with payment terms agreed in
advance. Since no billing is being done to claim the advances several
times this area of collectible is not reflected in accounts receivables.
Ideally, since advance payment is mutually agreed term, it is the
responsibility of the accounts department to take out periodically the
statement showing advance collectible and should be provided to sales
& marketing for collection of advances. The payment of accounts
receivable can be protected either by a letter of credit or by Trade
Credit Insurance.

Companies can use their accounts receivable as collateral when

obtaining a loan (asset-based lending) or sell them through factoring.
Pools or portfolios of accounts receivable can be sold in the capital
markets through a securitization.
Bookkeeping for accounts receivable
Companies have two methods available to them for measuring the net
value of account receivables, which is computed by subtracting the
balance of an allowance account from the accounts receivable
account.

The first method is the allowance method, which establishes a liability

account, allowance for doubtful accounts, or bad debt provision, that
has the effect of reducing the balance for accounts receivable. The
amount of the bad debt provision can be computed in two ways -
either by reviewing each individual debt and deciding whether it is
doubtful (a specific provision) or by providing for a fixed percentage,
say 2%, of total debtors (a general provision). The change in the bad
debt provision from year to year is posted to the bad debt expense
account in the income statement.

The second method, known as the direct write-off method, is simpler

than the allowance method in that it allows for one simple entry to
reduce accounts receivable to its net realizable value. The entry would
consist of debiting a bad debt expense account and crediting the
respective account receivable in the sales ledger.

The two methods are not mutually exclusive, and some businesses will
have a provision for doubtful debts and will also write off specific debts
that they know to be bad (for example, if the debtor has gone into
liquidation.)

For tax reporting purposes, a general provision for bad debts is not an
allowable deduction from profit - a business can only get relief for
specific debtors that have gone bad. However, for financial reporting
purposes, companies may choose to have a general provision against
bad debts in line with their past experience of customer payments in
order to avoid over stating debtors in the balance sheet.

Accounts Receivable (A/R) Discounted

Accounts receivables are often sold at a discount in order to mitigate
the risk that the debtor will not satisfy the obligation. The discount
arises because the factor assumes the underlying risk of the
receivables and must be compensated for the delayed inflow of funds.

Previously only large firms that could meet minimum threshold

requirements could enter into a relationship with a factoring firm
(typically a large bank) to sell their receivables and obtain much-
needed cash, and often with recourse. Today, medium- and small-sized
firms operating in virtually all industries (i.e. IT firms, manufacturers,
even hospitals) can find ways to sell their A/Rs for a discounted rate to
individual factoring firms or through factoring broker intermediaries.
An overview of the A/C Receivables in Bank
Islami:
The process of accounts receivable starts in Islami bank when products
or services are provided to a customer on credit. The manager that
details the transaction including the total amount and duration of
credit creates an invoice. The invoice is then recorded.
If payment is on time the accounts receivable process ends there.
However, often this is not the case. That's when the collection
department takes over. First, the customer is afforded the opportunity
to explain the delay. If there's a complaint regarding products or
services, the matter is forwarded to the respective departments. Once
the issue is resolved and payment is received the process is ended.
Sometimes the process will end if the product is shown to be faulty or
not up to the customer's expectations, at which point the debt may be
expunged or reduced.
The bad debts account will stay on record, but Islami may or may not
ever be able to collect on the debt. Some debts are lost causes, and
those losses must be cut so that the system does not get bogged
down.
Accounts Receivable provides detailed information on accounts
receivable, accounts receivable process, accounts receivable
collection, and more. Accounts Receivable is affiliated with Accounts
Receivable Management.

Accounts Receivable Process in Bank Islami:

Tracking receivables is an essential part of managing your company's
cash flow. Without a steady cash flow, many small businesses tend to
borrow more and more money to meet their working-capital needs.
The A/C receivables in Islami fall generally in the three kinds of
activities given below:
Recording daily sales and receipts.
Generating customer invoices and monthly statements.
Tracking customers' current and past-due balances.
According to our contact, these are the major components of the A/C
receivables in Islami bank:
Credit policies:
Customers at Islami are allotted a stringent credit policy and it’s made
sure that both the bank and the customers adhere to it. These policies
contain characteristics like:
Bank Islami’s conditions to extend credit
how much credit Bank Islami’ll extend, and to whom
Whether Bank Islami will accept checks and credit cards
How a new customer is to be analyzed and judged whether he can be
given credit or not
Billing policies:
 Typically, the concept is that faster you bill, the faster you'll get paid.
There are numerous policies which decide when Bank Islami will
invoice, and communicate its billing terms to customers to prevent
discrepancies about when bills are due. For example, to encourage
customers to pay early, discounts of up to 2 percent are given to
clients who remit payment within 10 days.
Aging accounts:
Customers' accounts are reviewed monthly and categorized as current,
30, 60, or 90 days or more past due.
Monthly statements:
Bank Islami sends monthly statements to its customers. Not only do
they serve as reminders to customers who are late with payments, but
they also provide documentation in case an account goes into
collections.
Accounting software:
The software that Islami utilizes simplifies the receivables process and
provides the employees with additional forecasting, invoicing and
tracking tools.
Essential Features
One of the basic function of Bank Islami ‘s accounting software is the
accounts receivable ledger, a detailed listing of amounts customers
owe. It’s a key report that the accounts receivable system produces at
once per month. Each item is listed in the ledger and includes
sufficient identifying information.
The system also holds the capability to check to ensure that a payment
can be applied against a specific invoice in all circumstances, even if it
represents only a partial payment of one invoice or if it pays multiple
invoices.
A related report that Bank Islami‘s accounting software runs is an
accounts receivable aged listing. This list contains accounts receivable
ledger charges in different columns, organized by their date. Typically
current charges are in the leftmost column; the next column lists those
31 to 60 days old, followed by 61 to 90 days, then 91 days and older.
The software’s ability to print customer statements at least monthly is
another important capability. A customer statement contains much the
same detailed item-by-item information as the accounts receivable
ledger but for just one specific customer. The statement can then be
sent to the customer to serve as a reminder of outstanding obligations.
Strategies used by Bank Islami to maintain and
manage A/C Receivables:
Knowing the A/R days of turn:
Accounts receivable turnover is a performance measurement of overall
A/R collection. As the number of days it takes to collect increases, the
“strength” of the overall A/R weakens. A decrease in the average
turnover is a positive sign of A/R strength.
Bank Islami calculates receivable turns and number of days
outstanding using the following formula:
Credit Sales by Month / Average Outstanding A/R = Receivable Turns
Then take Receivable Turns / 365 = Number of Days Outstanding
Communicating with customers:
The bank calls regular customers when they pay on time and let them
know that the bank appreciates their business. This makes it much
easier to call when payment is late.
Granting credit to new customers cautiously:
The bank requires new customers to fill out a credit application, and
checks their references. It also obtains a business credit report to see if
the customer is substantial enough to impact your overall accounts
receivable balance. Bank Islami requires 35% down with the first order.
Watching for trends in total A/R:
The bank looks out for trends in overall collection of accounts
receivable and with individual customers. If the overall A/R days of turn
are increasing and the business’s collection and credit practices
haven’t changed, this could be a sign of an overall weakening in
business among all customers. When one of your customers starts
stretching out payments, the bank contacts the customer and open
lines of communication.
Setting credit limits and reviewing them regularly:
The bank sets a credit limit so the system alerts it when the customer’s
outstanding A/R balance is about one and a half times the last 12-
month average. Credit limits are overridden if the customer warrants a
credit increase temporarily. When a customer has a large credit limit
and isn’t using most of it, it is reduced to avoid surprises.

Suing a Customer for Nonpayment

If the bank finds itself in the unfortunate, but common, situation where
a customer or client has not paid it for services rendered or for
merchandise already delivered, it has several options:
• Make a final demand for payment;
• Take legal action by filing a lawsuit in a court for the amount
owed
Any legal action the bank takes against a customer is typically filed in
the area or city in which the customer resides or does business.
Make Final Demand for Payment.
If a customer or client has not paid the bank, after repeated attempts
to collect payment, Bank Islami’s final option before suing should
always be another attempt to obtain payment. This is usually
accomplished by sending a final demand letter to the customer or
client demanding that payment be made. It is surprising how often the
final letter is successful. Sometimes it just takes one more demand to
receive payment. It is always a good idea to try one more time to be
paid.
If the bank gets no response to its final request for payment, then it
takes legal action by filing a lawsuit to recover its money.
Take legal action:
Bank Islami sues the person or business and usually succeeds in
recovering its money.
Refrences: website bank al islami, google.