Advanced Management Accounting Problems pp 266-269 | Cite as

# Credit Management and Markov Chains: Partial Balance Aging Method

Chapter

## Abstract

1. Represent the actual partial balance age structure of debts at the end of month

*j*as*I*_{ j }, and within*I*_{ j }refer to the*k*th element as*i*_{ j,k }where*k = P,B*,3,4,5,6,7 corresponds respectively to states*P,B*,0,1,2,3,4. Here states 0–4 refer to the five states of a debt from ‘less than 1 month old’ (state 0) to ‘over 4 months old’ (state 4). Refer to October as month*j*= 1, November as*j*= 2 and December as*j*= 3. Then the transition probabilities of payment*t*_{ kP }are as follows for*k*= 3…5 and*j*= 1…3. | | | |
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3 | 511401 | — | 79261 | = | 432140 | 0.845 |

4 | 94853 | — | 55212 | = | 39641 | 0.418 |

5 | 53711 | — | 12471 | = | 41240 | 0.768 |

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3 | 662666 | — | 103722 | = | 558944 | 0.844 |

4 | 79261 | — | 43685 | = | 35576 | 0.449 |

5 | 55212 | — | 42433 | = | 12779 | 0.231 |

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## Copyright information

© Kenneth P. Gee 1986