In the business world, the term accounts receivable is a very familiar term. AR or trade receivables are claimed against other parties in form of money, goods or services sold on credit.
Accounts receivable will be recorded automatically so, we send a sales invoice to the customer. Every company must manage accounts receivable properly in order to make a profit, as well as encourage the achievement of company goals. The characteristics of trade receivables are their maturity value, maturity date and applicable interest.
Once upon a time, you must have had an item that you wanted to sell to a friend or relative. Then your friend intends to buy your goods and ask for an agreed upon payment period. That leaves you with accounts receivable until your friend pays off the payment for the item.
In order to find better understanding about trade receivables, businessmen must know the types of trade receivables that are grouped into current assets on the balance sheet.
Notes receivable are statements of the amount owed by customers in the form of formal documents. Unlike trade accounts receivable, Notes Receivable can only be classified into current assets on the balance sheet if the amount due can be collected within one year. Usually this type of receivable is used for credit periods of more than 60 days.
These receivables include interest receivables, tax receivables, and employee receivables which are similar in nature to Notes Receivable, if they can be collected within a year, they can be classified as current assets. If it is estimated that it has only been collectible for more than a year, then it is classified as a non-current asset and must be reported to the investment department.
Uncollectible Accounts Receivable
Uncollectible Accounts Receivable can be occured if some customers do not pay collectible debts. Many companies transfer the risk of bad debts to other parties. An example in this case is when A buys goods at a raw material provider company, this company does not accept payments on credit, but can be paid via credit card or cash.
For the accounts receivable method. Usually, trade receivables are categorized into periods that are a multiple of the payment terms. For example, if a company sells with the payment terms n/30, the classification in the accounts receivable age analysis is 0 to 30 days, 30 to 60 days, 60 to 90 days, and so on.
In practice, sometimes receivables cannot be fully collected, sometimes all collection efforts have been made. When will the receivables be uncollectible? Receivables are uncollectible due to the customer’s bankruptcy, closure of business premises, and death.