Receivables

Definition:

Receivables are accounts receivable, amounts due from customers for goods sold or services rendered on credit. They are current assets that represent amounts that are owed to the company by its customers.

Types of Receivables:

• ** Accounts receivable:** Amounts due from customers for invoices or bills issued.
• Open accounts: Accounts with customers where payments are made on a regular basis, such as monthly or quarterly installments.
• Notes receivable: Written instruments issued by customers to the company as evidence of debt.

Accounts Payable:

Accounts payable are amounts due to suppliers or creditors for goods or services received. They are current liabilities that represent amounts that are owed to others.

Journal Entries:

• Accounts receivable journal entry: Debit accounts receivable, credit sales revenue.
• Accounts payable journal entry: Credit accounts payable, debit purchases or accounts payable expense.

Accounting Treatment:

• Accounts receivable are recorded at their current market value or face value.
• Bad debt expense is recorded when an account receivable is deemed uncollectible.
• Accounts payable are recorded at their current value.
• Accounts payable are paid off when they become due.

Uses of Accounts Receivable:

• To calculate current assets.
• To track customer payment history.
• To forecast cash flow.

Importance:

• Accounts receivable are an important part of a company’s cash flow and accounts payable management.
• They provide a source of liquidity and can be used to finance operations.
• Accounts payable are essential for maintaining relationships with suppliers and creditors.

Additional Notes:

• Accounts receivable and accounts payable are two important accounts in the accounting equation.
• Accounts receivable are typically classified as current assets, while accounts payable are typically classified as current liabilities.
• The turnover of accounts receivable and accounts payable measures how quickly a company collects its accounts receivable and pays its accounts payable.