Accounts receivable represent the amount due to the entity. This term is used in the accounting department of any organization. In other words, these are debts for payment or shipment, which must be repaid in the near future.
The essence of receivables
The essence of accounts receivable is that in the accounting department these "debts" are considered as part of the firm's asset, that is, in fact, they have not yet been paid, but are included in the profit. According to accounting laws, everything should be clear, and it is believed that obligations must be unconditionally repaid within the established time frame, therefore, the total amount automatically goes to the asset, but this is theory. In practice, this is often not the case. For this, you need to manage accounts receivable. It is necessary to check and analyze each amount, monitor the timeliness of payment. The presence of supporting primary documents is required. The total amount of accounts receivable before repayment of debts is compensated by funds temporarily withdrawn from the company. This is done in order to maximize profits and retain profitable partners.
If the receivables exceed the accounts payable, then the company is considered profitable and successfully operating. Accounts receivable are included in the balance sheet asset and are part of the working capital.
Accounts receivable, basically, is a normal business process in the organization, it includes the following transactions:
- advances issued to suppliers of goods and services;
- debt of accountable persons;
- debts of buyers and customers, within the established time frame;
- overpayment of taxes and fees to the budget.
Accounts receivable from suppliers
Such debt arises at the time of payment to the supplier and is settled at the time of receipt of the goods or services. This period can last several days or months, depending on the nature of the relationship. Usually all terms and conditions are negotiated by the parties in the contract. Therefore, when managing accounts receivable, the contract is the main governing document.
In the period between payment and shipment, a receivable is generated and the counterparty becomes financially liable to repay this debt.
Accounts receivable from buyers and customers
Such debt arises at the time of shipment of goods or services and is settled at the time of payment by the buyer or customer. The main supporting document is an act of work performed (for services) or a consignment note (for inventory items). Payment terms are regulated by an agreement between the two parties.
In this case, the company ships goods or provides services without prepayment, and at this moment a receivable is formed, the counterparty becomes a debtor.
