What is Accounts Receivable

Standard

Accounts receivable represents the money owed to a company for outstanding invoices for goods or services provided to a client. It is the right to received for delivering a service or product.

Accounts receivable is an enforceable claim for payment and is generally executed by raising an invoice which is either mailed or delivered electronically to the customer who is required to pay for the cost of goods or services within a specified timeframe which is commonly described as the terms of trade.

To record report accounts receivable a debit entry is posted to accounts receivable when an invoice is raised as receivable and credit entry is posted to accounts receivable when the payment is received for the invoice.

Payment terms are generally 30 days from the date of the invoice and in some instances late payment fees are charged if the invoice is not paid by the due date.

While recording an item in accounts receivable can be accomplished with relative ease, the process of collecting payments and maintaining the accounts receivable ledger can be a full time task.

The Accounts Receivable ledger is divided is generally reported as either current, 30 days, 60 days, 90 days or longer. The accounts payable report is commonly termed an aged trial balance where clients are typically listed in alphabetic order or by the amount outstanding, or according to the company chart of accounts. Zero balances are not usually shown.

Please note: Prepared by Leigh Barker West Pennant Hills – Accountant at MWC Group, Tangible Assets, Portfolio Finance and Gordon. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.

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