Receivables Accounting Policies
Receivables are a crucial part of any successful business. It is important to have well-defined receivables accounting policies in order to properly manage and track customer payments. This article will discuss the different types of receivables, the importance of accurate recording of receivables, and the various accounting policies associated with receivables.
First, it is important to understand the types of receivables. Some of the most common types of receivables include accounts receivable, sales returns and allowances, notes receivable, and interest receivable. Accounts receivable consists of amounts that are owned to a business by customers. This can include invoices that are due from customers or money that has been loaned to a customer. Sales returns and allowances are balances due in the event a customer returns a product or the business agrees to reduce the original selling price of the product. Notes receivable are promissory notes due to the business at a future date for a specific amount. Finally, interest receivable are amounts that are owed to a business for providing a loan or for providing services.
It is also important to accurately record receivables. This is because accurate records of receivables can assist with cash flow management, as well as other financial goals such as budgeting and forecasting. Accurate records also allow companies to track customer payments and determine their payment performance. This can be particularly helpful when determining credit terms for customers.
When it comes to accounting policies associated with receivables, it is important to use consistent practices in order to ensure accuracy. Some common accounting policies include using double-entry accounting to record receivables as both an asset and as a liability. Additionally, businesses may include an allowance for doubtful accounts in order to estimate the amount of receivables that may not get collected. They may also establish terms of payment, such as net 30 days or discount for early payment. Companies may also use the aging of receivables method to track payments and follow up on overdue accounts.
In conclusion, receivables are an important asset of any successful business, and having proper accounting policies in place can help to ensure their accuracy and maximize benefits. Types of receivables include accounts receivable, sales returns and allowances, notes receivable, and interest receivable. Accurate accounting is important for managing cash flow, budgeting, and forecasting. Common accounting policies for receivables include double-entry accounting, allowance for doubtful accounts, payment terms, and aging of receivables.
