Accounts Receivable
Money which is owed to a company by a customer for products and services provided on credit. This is treated as a current asset on a balance sheet. A specific sale is generally evidenced as an account receivable by an invoice sent to the customer.
Accounts Receivable Valuation
Accounts receivable are reported on the balance sheet at their net realizable value which is the amount of cash expected to be received. This amount may be less than the originally invoiced amount because of uncollectible receivables and returns or allowances.
If you sell on account, you always run the risk of not collecting the money owed to you. An uncollectible account needs to be reflected on your financial statements as a reduction of profit (through an increase in bad debt expense) and a reduction of accounts receivable. You have two choices in how to handle uncollectible accounts receivable:
- Direct write–off method. With this method you only record an uncollectible account receivable when it actually proves to be uncollectible. At that point you record the bad debt expense in the amount of the uncollectible account and write off that account from your accounts receivable subsidiary ledger.
- Allowance method. In this case you estimate what portion of your accounts receivable might become uncollectible and you record that estimate in the same period in which you record the sale. The entry is to debit the Bad Debt expense and credit a contra account to accounts receivable called Allowance for uncollectible accounts which effectively reduces the amount of accounts receivable you show on your balance sheet.
If your company offers cash discounts for prompt payment, the easiest way to record that would be to post the sales and related accounts receivable at the gross amount until the time of payment. Then, if your customer takes advantage of the cash discount within the discount period, you would show that cash discount as a deduction of sales.
Accounts Receivable classification
Accounts receivable shown as current assets on the balance sheet are expected to be received within a year or the operating cycle, whichever is longer. All other accounts receivable are classified as long–term.
12 Month Cash Flow Template
The best way to manage your cash levels is with a cash flow analysis tool. This cash flow template is this kind of a tool. Lay out your cash inflows and outflows in an organized fashion and monitor your cash balances from day to day or week to week. This way you will know in advance when you cash balance will be high enough to transfer some of it to marketable securities.
Don't lose interest income by having large cash balances just sit in your bank account, but also don't get caught off guard by a large bill you overlooked. No need to pay overdraft fees when you can easily predict and control your cash balance. Managing your cash is not hard, but it does take some organization and some time staying on top of it regularly. Let this cash flow template do the math for you and help you stay in control of your cash.
Balance Sheet Templates
1, 3 and 5 year balance sheet templates for three different legal entities: LLC, corporation and a sole proprietor.
Balance Sheet Analysis
Learn how to analyze a balance sheet in terms of company's liquidity and solvency using financial ratios such as the current ratio, quick (or acid) ratio, debt to asset ratio and debt to equity ratio.
Return from Accounts Receivable to Sample Balance Sheet
Return from Accounts Receivable to Small Business Accounting
