𝐅𝐮𝐥𝐥 𝐃𝐞𝐭𝐚𝐢𝐥𝐬 𝐨𝐟 𝐀𝐜𝐜𝐨𝐮n𝐭𝐬 𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞

 𝐅𝐮𝐥𝐥 𝐃𝐞𝐭𝐚𝐢𝐥𝐬 𝐨𝐟 𝐀𝐜𝐜𝐨𝐮n𝐭𝐬 𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞:

Definition

Accounts Receivable (AR) refers to the amount of money that customers owe to a business for goods or services sold on credit.

Types of Accounts Receivable

Trade Accounts Receivable: Amounts owed by customers for goods or services sold in the normal course of business.

Non-Trade Accounts Receivable: Amounts owed by customers for goods or services sold outside of the normal course of business.

Notes Receivable: Formal written promises to pay a certain amount of money at a specified future date.

Importance of Accounts Receivable

Cash Flow: AR provides a source of cash flow for businesses.

Liquidity: AR helps businesses meet their short-term financial obligations.

Growth: AR can help businesses grow by providing the necessary funds for expansion.

Accounts Receivable Process

Sales: Goods or services are sold to customers on credit.

Invoicing: Customers are sent invoices for the amount owed.

Payment: Customers make payments to the business.

Posting: Payments are posted to the customer's account.

Accounts Receivable Accounting

Initial Recognition: AR is recognized when goods or services are sold on credit.

Measurement: AR is measured at the amount of cash expected to be received.

Presentation: AR is presented as a current asset on the balance sheet.

Managing Accounts Receivable

Credit Policy: Establishing a credit policy to determine which customers are eligible for credit.

Invoicing: Sending invoices to customers promptly to ensure timely payment.

Follow-up: Following up with customers to ensure payment is made.

Collections: Taking steps to collect overdue payments.

Accounts Receivable Metrics

Days Sales Outstanding (DSO): Measures the average number of days it takes to collect payment from customers.

Accounts Receivable Turnover: Measures the number of times AR is turned over during a period.

Bad Debt Expense: Measures the amount of AR that is not expected to be collected.