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ACCOUNTS RECEIVABLE- AN INTRODUCTION

ACCOUNTS RECEIVABLE- AN INTRODUCTION



Accounts receivable is a financial term that refers to the money a business is owed by its customers for goods or services that have been delivered or used but not yet paid for. Accounts receivable is considered an asset for a business because it represents money that is expected to come in, and it is recorded in the Assets side in the company’s balance sheet.

In order to manage accounts receivable, businesses will typically have a system in place to track and record customer invoices and payments. This may include using software programs or spreadsheets to record customer information, as well as tracking the status of invoices and payments.

It is important for businesses to have a good understanding of their accounts receivable in order to effectively manage their cash flow. This includes monitoring the amount of money that is outstanding and the length of time it takes for customers to pay their invoices. Businesses can also use this information to set credit policies and establish payment terms with their customers.

Overall, accounts receivable is a crucial aspect of managing a business’s financial health and is essential for maintaining a positive cash flow. By effectively monitoring and managing accounts receivable, businesses can ensure that they are getting paid for the goods and services they provide, and that they have a good understanding of their financial position.

For example, a company sells $10,000 worth of goods to a customer on credit. The company would record this transaction by debiting the accounts receivable account for $10,000 and crediting the sales account for $10,000.

The journal entry would look like this:

Debit:         Party Name/Debtors/Accounts Receivable A/c    $10,000 Credit:        To Sales A/c                                                     $10,000

When the customer pays the company for the goods, the company would then record the payment by debiting the cash account for the amount received and crediting the accounts receivable account.

Debit:     Cash A/c                                                             $10,000 Credit:        To Accounts Receivable A/c                           $10,000

This journal entry serves to reduce the accounts receivable account balance and increase the cash account balance.


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