Accounts Receivable Management Accounts Receivable Meaning and its Management A

Accounts receivable management accounts receivable

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Accounts Receivable Management Accounts Receivable – Meaning and its Management A sale is realized as and when the invoice is generated but usually, a time period is provided to the customers for the payment of the amount due. This practice of conducting business on credit terms give rise to Accounts Receivable (AR) in the financial statements. This credit facility is laid down to ensure a smooth flow of the working capital into the businesses. There are complexities involved with the accounts receivable i.e its management, the process of recording in financial statements, credit period etc. Let’s discuss briefly on all the terms connected to Accounts Receivable. 1. What is Accounts Receivable? The word receivable stands for the amount of payment not received. This means the company has extended credit facility to its customers. 82
Accounts receivable is the money that a business has a right to receive after a certain period of time when the business has sold goods or services on credit. For example, the accounts receivable is the record of fact that a company has done some work for customer X and that customer X owes money to the company. Generally, the credit period is short ranging from a month or two to a year. 2. Why are Accounts receivable important? The businesses usually have invested money in selling a product or delivering a service. After selling the goods, the inventories reduces and in turn businesses need an asset to balance the financial statements. Either that assets are cash-in-hand or receivables in case of credit sales and that’s why accounts receivable appear in the assets side of the balance sheet. As accounts receivables form a major part of the organization’s asset, it leads to the generation of cash in-flow in the books of the organization. The idea behind providing a credit facility to the customers is to facilitate and ease the process of the transaction and establish a strong credit relation between the parties involved. It may lead to better deals or increase the chances of improving the working capital management. 3. How is Accounts receivable recorded in the financial statements?Usually, the businesses expect to receive money in the future, so it is to be added to the assets in the financial statement of the business. The accurate record keeping of this money that is receivable (accounts receivable) in the books of accounts are required to avoid any default in the payment due.Few pointers connected to recording accounts receivable are as follows : a. Establishing the practice of credit transactions :b. Generating invoices for the customer : The business may establish a practice of providing a credit policy to its buyers. This credit can be extended for a specified time period and any default in this payment usually attracts penalty. This practice of credit facility requires two parties to come to an agreement on the terms and conditions for such credit transactions. The provider of this facility should also verify the paying ability of the customer before agreeing to any terms and conditions.to prevent loss of cash inflow. 83
The businesses are required to generate invoices of the sales made or services delivered. The

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