Chapter 8: Reporting and Analyzing Receivables
8.1 Recognition of Accounts Receivable
• The term receivables refers to amounts due from individuals and companies
o Receivables are claims that are expected to be collected in cash
o The management of receivables is a very important activity for any company
that sells goods or services on credit
o Receivables are important because they represent one of a company’s most
liquid assets. For many companies, receivables are also one the largest
assets
• Types of Receivables
o The relative significance of a company's receivables as a percentage of its
assets depends on various factors: its industry, the time of year, whether it
extends long-term financing, and its credit policies. To reflect important
differences among receivables, they are frequently classified as accounts
receivable, notes receivable, and other receivables
o Accounts receivable = amounts customers own on account
▪ Results from the sale of goods and services. Companies generally
expect to collect accounts receivable within 30 to 60 days. They are
usually the most significant type of claim held by a company
o Notes receivable = a written promise (as evidenced by a formal instrument)
for amounts to be received
▪ The note normally requires the collection of interest and extends for
time periods of 60-90 days or longer
▪ Notes and accounts receivable that result from sales transactions are
often called trade receivables
o Other receivables = include nontrade receivables such as interest
receivable, loans to company officers, advances to employees, and income
taxes refundable
▪ These do not generally result form the operations of the business.
Therefore, they are generally classified and reported as separate
items in the balance sheet
• Recognizing Accounts Receivable
o Service organization records a receivable when it performs a service on
account
8.1 Recognition of Accounts Receivable
• The term receivables refers to amounts due from individuals and companies
o Receivables are claims that are expected to be collected in cash
o The management of receivables is a very important activity for any company
that sells goods or services on credit
o Receivables are important because they represent one of a company’s most
liquid assets. For many companies, receivables are also one the largest
assets
• Types of Receivables
o The relative significance of a company's receivables as a percentage of its
assets depends on various factors: its industry, the time of year, whether it
extends long-term financing, and its credit policies. To reflect important
differences among receivables, they are frequently classified as accounts
receivable, notes receivable, and other receivables
o Accounts receivable = amounts customers own on account
▪ Results from the sale of goods and services. Companies generally
expect to collect accounts receivable within 30 to 60 days. They are
usually the most significant type of claim held by a company
o Notes receivable = a written promise (as evidenced by a formal instrument)
for amounts to be received
▪ The note normally requires the collection of interest and extends for
time periods of 60-90 days or longer
▪ Notes and accounts receivable that result from sales transactions are
often called trade receivables
o Other receivables = include nontrade receivables such as interest
receivable, loans to company officers, advances to employees, and income
taxes refundable
▪ These do not generally result form the operations of the business.
Therefore, they are generally classified and reported as separate
items in the balance sheet
• Recognizing Accounts Receivable
o Service organization records a receivable when it performs a service on
account
