Receivables are the current assets of the company and show the amount that needs to be collected from third parties.
Types of Receivables
1. Trade Receivables
An entity that sells goods or services usually has to do so by providing credit terms to the customers. As a result, the accounts receivable builds to pile up.
Components of Trade Receivables
a. Accounts Receivable
These are the customers to which company sells its goods and services on credit terms usually 30 days or 45 days credit periods. As we know that whenever the entity sells products and services to customers, very few hardly pay at the spot. So, on the basis of revenue recognition concept, the accountant has to record sales by creating accounts receivable head and has to pass on the following journal entry:
| Accounts Receivable | xxxxx | |
| Sales | xxxxx |
b. Notes Receivable
Accounts receivable comes into existence by the issuance of the invoice to the customers. On the other hand, notes receivable comes into existence by issuing a written statement from the customers to pay the amount due on the specified date. Notes receivable may be of current and long term nature. If it is off long term nature, it will definitely charge interest rate on the amount due.
The following journal entries are important in notes receivable transaction:
| Debit | Credit | |
| Notes Receivable | xxxxx | |
| Sales | xxxxx | |
| Interest Receivable | xxx | |
| Interest Income | xxx |
2. Non-trade receivables
These are the receivables that need to be collected from transactions not related to the operation of the business such as the amount receivable from employees given as advance and tax refund receivable from tax authorities.
Further topics in Accounts Receivables
Factoring of Accounts receivable