The businesses shall also generate timely reminders for dues pending to the customers. This ensures correctness of accounting of the credit amount. The details of the method of payment and date of receiving payment have to be recorded in the customer’s ledger account. Tracking the payments received and the payment that is due to be receivedĪn accountant is required to track the payments received or due from the customers. Further, a copy of the invoice is given to the customer to make the payment as per the agreed terms. This generating of invoice ensures the recording of the credit transaction clearly in the accounts of the business. The invoice should have details of the cost of goods and services sold to the customers. The businesses are required to generate invoices of the sales made or services delivered. The provider of this facility should also verify the paying ability of the customer before agreeing to any terms and conditions.to prevent loss of cash inflow. This practice of credit facility requires two parties to come to an agreement on the terms and conditions for such credit transactions. This credit can be extended for a specified time period and any default in this payment usually attracts penalty. The business may establish a practice of providing a credit policy to its buyers. The accurate record keeping of this money that is receivable (accounts receivable) in the books of accounts are required to avoid any default in the payment due.įew pointers connected to recording accounts receivable are as follows : Establishing the practice of credit transactions Usually, the businesses expect to receive money in the future, so it is to be added to the assets in the financial statement of the business. It may lead to better deals or increase the chances of improving the working capital management.įile Now How is Accounts receivable recorded in the financial statements? The idea behind providing a credit facility to the customers is to facilitate and ease the process of the transaction and establish a strong credit relation between the parties involved. Either that assets are cash-in-hand or receivables in case of credit sales and that’s why accounts receivable appear in the assets side of the balance sheet. As accounts receivables form a major part of the organization’s asset, it leads to the generation of cash in-flow in the books of the organization. After selling the goods, the inventories reduces and in turn businesses need an asset to balance the financial statements. The businesses usually have invested money in selling a product or delivering a service. Generally, the credit period is short ranging from a month or two to a year. This means the company has extended credit facility to its customers. Accounts receivable is the money that a business has a right to receive after a certain period of time when the business has sold goods or services on credit.įor example, the accounts receivable is the record of fact that a company has done some work for customer X and that customer X owes money to the company. The word receivable stands for the amount of payment not received.
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