accounts receivable

(noun)

Amounts that customers owe the company for normal credit purchases.

Related Terms

Examples of accounts receivable in the following topics:

  • Types of Receivables

    • Receivables can generally be classified as accounts receivables or notes receivable, though there are other types of receivables as well.
    • Receivables can be classified as accounts receivables, notes receivable and other receivables ( loans, settlement amounts due for non-current asset sales, rent receivable, term deposits).
    • Accounts receivable are amounts that customers owe the company for normal credit purchases .
    • Accounts receivable and notes receivable that result from company sales are called trade receivables, but there are other types of receivables as well.
    • For example, interest revenue from notes or other interest-bearing assets is accrued at the end of each accounting period and placed in an account named interest receivable.

  • Classifying Receivables

    • Receivables can be classified as accounts receivables, trade debtors, bills receivable, and other receivables.
    • Accounts receivable is the money owed to that company by entities outside of the company.
    • Not all accounts receivables will be paid, and an allowance has to be made for bad debts.
    • Accounts receivable therefore can be classified according to their age.
    • Distinguish between accounts receivable, trade debtors, bills receivables and other receivables

  • Activities to Manage Receivables

    • Accounts receivable (or debtors) represent money owed to a business by its clients (customers).
    • The accounts receivable departments use the sales ledger.
    • The accounts receivable team is in charge of receiving funds on behalf of a company and applying it towards their current pending balances.
    • Collections and cashiering teams are part of the accounts receivable department.
    • To record a journal entry for a sale on account, one must debit a receivable and credit a revenue account.

  • Reporting Receivables

    • Accounts receivable are reported as a line item on the balance sheet and in a more detailed again report.
    • Accounts receivable are reported as a line item on the balance sheet.
    • Supplementary reports, such as the accounts receivable aging report, provide further detail.
    • An accounts receivable aging report summarizes receivables based on their age—how long they have been outstanding.
    • The accounts receivable age analysis, also known as the Debtors Book, is divided into categories for current, 30 days, 60 days, 90 days, 120 days, 150 days, 180 days, and overdue that are produced in modern accounting systems.

  • Valuing Accounts Receivable

    • Business owners know that some customers who receive credit will never pay their account balances.
    • Recognizing the bad debt requires a journal entry that increases a bad debts expense account and decreases accounts receivable.
    • Accounts receivable is a control account that must have the same balance as the combined balance of every individual account in the accounts receivable subsidiary ledger.
    • Since the specific customer accounts that will become uncollectible are not yet known when the adjusting entry is made, a contra-asset account named allowance for bad debts, which is sometimes called allowance for doubtful accounts, is subtracted from accounts receivable to show the net realizable value of accounts receivable on the balance sheet.
    • Differentiate between the direct write-off method and the allowance method of accounts receivable valuation

  • Recognizing Notes Receivable

    • In accounting, notes receivables are accounts to keep track of accrued assets that have been earned but not yet received.
    • In accounting, notes receivables are accounts to keep track of accrued assets that have been earned but not yet received.
    • Accrued assets are assets, such as interest receivable or accounts receivable, that have not been recorded by the end of an accounting period.
    • To record a journal entry for a sale on account, one must debit a receivable and credit a revenue account.
    • Companies have two methods available to them for measuring the net value of accounts receivable, which is generally computed by subtracting the balance of an allowance account from the accounts receivable account.

  • Write-Offs

    • When a sale is made on account, revenue is recorded along with account receivable.
    • The credit is to the Accounts Receivable control account in the general ledger and to the customer's account in the accounts receivable subsidiary ledger.
    • Debiting the allowance account and crediting Accounts Receivable shows that the firm has identified Smith's account as uncollectible.
    • A write-off does not affect the net realizable value of accounts receivable.
    • Accounts receivable 50,000 Dr. // 750 Cr. // $ 49,250 Dr.

  • What Is a Receivable?

    • Accounts receivable is an asset which is the result of accrual accounting.
    • The accounts receivable departments use the sales ledger.
    • The accounts receivable team is in charge of receiving funds on behalf of a company and applying it towards their current pending balances.
    • Collections and cashiering teams are part of the accounts receivable department.
    • Factoring makes it possible for a business to readily convert a substantial portion of its accounts receivable into cash.

  • Valuing Notes Receivable

    • Companies have two methods available to them for measuring the net value of accounts receivable: the allowance method and the direct write-off method.
    • Companies have two methods available to them for measuring the net value of accounts receivable--the allowance method and the direct write-off method.
    • The first method is the allowance method, which establishes a contra-asset account, allowance for doubtful accounts, or bad debt provision, that has the effect of reducing the balance for accounts receivable.
    • It 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 accounts receivable in the sales ledger.

  • Using the Receivables Turnover Ratio

    • The receivables turnover ratio measures how efficiently a firm uses its assets.
    • The receivables turnover ratio, also called the debtor's turnover ratio, is an accounting measure used to measure how effective a company is in extending credit as well as collecting debts.
    • The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
    • A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient; in contrast, a low ratio implies the company is not making the timely collection of credit.
    • Sometimes the receivables turnover ratio is expressed as the "days' sales in receivables":