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Introduction

Receivables are amounts due to a company from its customers, suppliers, or other entities. They are recorded on the balance sheet as assets. Receivables are important because they represent future cash flows for the company.

Types of Receivables

There are two main types of receivables: trade receivables and non-trade receivables.

  • Trade receivables are amounts due to a company from its customers for goods or services sold on credit. They are the most common type of receivable.
  • Non-trade receivables are all other types of receivables, such as:
    • Accounts receivable from employees for advances or loans
    • Interest receivable
    • Dividends receivable
    • Rent receivable
    • Taxes receivable

Accounting for Trade Receivables

Trade receivables are recorded on the balance sheet as assets. The amount of trade receivables is the total amount due to the company from its customers.

When a company sells goods or services on credit, it records the transaction as a credit to accounts receivable and a debit to sales revenue. For example, if a company sells goods worth $100 on credit, it would record the following entry:

Accounts receivable 100
Sales revenue 100

When the customer pays the receivable, the company records the payment as a credit to cash and a debit to accounts receivable. For example, if a customer pays $100 on a $100 receivable, the company would record the following entry:

Cash 100
Accounts receivable 100

Accounting for Non-Trade Receivables

Non-trade receivables are recorded on the balance sheet as assets. The amount of non-trade receivables is the total amount due to the company from other entities.

Non-trade receivables are typically recorded in the same way as trade receivables. However, there are some special considerations for certain types of non-trade receivables.

For example, interest receivable is recorded as a credit to interest receivable and a debit to interest revenue. Dividends receivable are recorded as a credit to dividends receivable and a debit to dividend revenue.

Accounting for Bad Debts

Bad debts are uncollectible accounts receivable. When a company determines that a receivable is uncollectible, it must write off the receivable.

To write off a bad debt, the company records a debit to bad debt expense and a credit to accounts receivable. For example, if a company determines that a $100 receivable is uncollectible, it would record the following entry:

Bad debt expense 100
Accounts receivable 100

Conclusion

Accounting for receivables is an important part of financial accounting. By understanding the different types of receivables and how they are recorded, accountants can ensure that financial statements are accurate and provide a fair representation of a company’s financial position.

Additional Information

In addition to the information provided in this article, there are a few other things to keep in mind when accounting for receivables:

  • Receivables are typically classified as current assets. This means that they are expected to be collected within one year.
  • Receivables are subject to valuation. Companies must estimate the amount of receivables that are likely to be uncollectible and record a provision for bad debts.
  • Receivables are a major source of financing for many businesses. By managing receivables effectively, companies can improve their cash flow and financial performance.

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