Recognizing Receivables by John Abio
What Is a Receivable?
A receivable is basically the funds that are owed to a firm, business or organizations by its customers or clients and that are showed on their balance sheet records as an asset of the company. Account receivable is an asset of the company that is consequent of the accrual of funds owed by credit transactions the company takes part in.
· Receivables are monies on transactions for goods bought and services rendered which have not been paid
· Account receivables are generally procured by recording and generating an invoice, which is gotten to the clients through different means
· Like all debts, receivables must be paid upon an agreed contractual period of time. Debts do not have value unless they are paid. This period of time is known as Credit terms.
To record the account receivable of a company, the accounting department uses a sales ledger. The sales ledger records;
· The various sales transactions a firm or business has made and the dates
· The amount of money generated from sales transactions
· The amounts owed by the business
The accounts receivable team of a company assumes responsibility for receiving funds and debts on behalf of a firm and using it to either fund the operations of the company, or offsetting debts accrued by the company. This team is also responsible for collection. Basically, the two roles of the account receivable team are to collect the funds, and to apply the funds received for efficient running of the company. Companies can also sell the debts owed then to factoring companies at a discounted rate. These companies then take responsibility for the debt collection and usage. Basically, factoring helps companies to seamlessly liquidate their account receivable, i.e. turn the debts to cash.
Types of Receivables
There are different types of receivables. The common denominator between them is the fact that they are debts (for lack of a better word), owed to the company. Examples of receivables include
· Account receivables
· Note receivables
Accounts receivable are basically the monies that clients owe the firm in the course of normal credit sales transactions. Note receivables on the other hand, are monies owed to the companies by clients and customers who sign formal notes, acknowledging their debts and providing a contractual agreement with clear credit terms. Note receivables are very useful in that they help to bolster the firm’s legal stance in the case the debtor reneges on payment.
There are other classifications for receivables. Receivables can also be classified into current and non-current receivables. Current receivables are receivables that are projected to be received within the current accounting period while non-current receivables are receivables that are expected to be received outside the current accounting period. Non-current receivables are seen as long-term assets. It is prudent to have a record of account that seems shaky on payment. These accounts should be added together and subtracted from the actual account on the balance sheet so that the company can have a solid idea of the value the account receivable really is.