Exploring accounting fundamental, among the constituent topics is a / r accounting. This subject is carefully associated with the accrual basis principle, since receivables represent current assets taken into account within the books of economic brought on by purchase of products or delivery of services. This short article expands more about the idea of receivables as well as their accounting aspects.
As already pointed out, A / R are related to current assets category and therefore are taken into account because of goods’ purchase or provision of services. Receivables represent the right of economic to assert payment from customers for that sales performed. Making this a personal debt from people to the vendor which needs to be paid back back inside the time period that is agreed through the parties, i.e. seller and customer.
Receivables are taken into account when business sells goods or provides services, however cash from customer is going to be collected afterwards. This kind of asset is produced only if accrual basis accounting principle is used, meaning sales revenue is recognized even though cash wasn’t received yet. The next accounting entry is created:
D A / R (Current Asset category) $1000
C Sales Revenue $1000
When cash from customer is collected, the next accounting entry is created:
D Cash $1000
C A / R $1000
Since receivables are attributed to the present asset category, their balance is individually presented around the Balance Sheet.
Below you’ll find simple practical example how you can take into account receivables. Let’s think that on March 15 company ABC offered goods to the customer company DCF for $5,600. Both sides agreed that DCF covers these goods within thirty days in the purchase, i.e. the ultimate payment date is April 14. On March 31 customer compensated area of the debt for that goods, i.e. $1,300. The rest of the part was compensated on April 5.