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Identify the different types of receivables and explain how companies recognize accounts receivable.

Question:

Identify the different types of receivables and explain how companies recognize accounts receivable.

Types of Receivables:

Receivables are current assets to a business. It refers to the payments that a business expects from customers that have made purchases on credit. Notably, it is the opposite of account receivables.

Answer and Explanation:

Accounting receivables are classified in the following categories:

  • Accounts receivables. It refers to the proceeds of payment a business intends to receive from different customers who have made credit purchases on a short term basis. Important to note, the receivable is denoted as a current asset.
  • Notes receivables. It is the amount of money that customers owe a company on account. Markedly, the existing dissimilarity between notes and accounts receivables is that the former takes longer to be repaid than the latter. Notes receivables lead to an increase in current assets.

Accounts receivables are recognized by companies by recording them at invoice prices. Elements affecting accounts receivables include sales returns as well as allowances, which reduce the amount of receivables. Additionally, cash discounts have the effects of reducing notes and accounts receivables. Conversely, the interest charged on the amount owed on receivables, which are commonly known as interest volume, has the impact of increasing the receivables.


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Credit Policy & Receivables

from Finance 101: Principles of Finance

Chapter 19 / Lesson 1
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