Accounts receivable detonates the amount of money that is owed by entities to the firm on its product and services sales on credit. In a majority of business organizations, accounts receivable is ideally executed through the generation of an invoice and either mailing or delivering it electronically to the client.in turn, the client needs to pay it within the established time frame and that is the credit terms or fundamentally the payment terms (Weygandt, Kimmel & Kieso, 2015).
On the balance sheet of a company, receivables can be categorized as accounts receivable, bills receivable and other specified receivables for instance rent receivables, non-current asset sales settlement amounts, loans and term deposits among others (Weygandt, Kimmel & Kieso, 2015). The accounts receivables are the finances owed to the corporation by entities that are without the corporation. Other sets of receivables are divided based on whether they are expected to be received within the span of the present accounting period (current receivables) or on a span more than 12 months (non-current receivables). It is also notable that most likely, not all account receivables will be paid, and therefore an allowance needs to be made for bad debts (Chen, 2014). Such an allowance can be calculated either by the ageing technique of bad debt estimation or as a net credit sales percentage (Pearson, 2018).
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A report of the accounts receivable is done as a line item on the balance sheet and a thorough again report. The ageing report on accounts receivables summarizes the receivables premised on the duration they have been outstanding. The debtor's book is subdivided into categories; current, 30, 60, 90, 120, 150 days and overdue. The aging report is crucial for the business to identify issues soon after they arise and evade greater problems from taking place in the future. The firm can analyze how it gives credit and collects debts by using the receivables turnover ratio (Chen, 2014).
References
Chen, J. (2014). Financial Accounting: Tools for Business Decision Making, Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso. John Wiley & Sons, Inc., Hoboken, NJ (2012), (880 pp., US $185), ISBN: 9781118162286.
Pearson, J. L. (2018). A Collection of Accounting Case Studies Analyzing Financial Reporting (Doctoral dissertation, The University of Mississippi).
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting . John Wiley & Sons.
