In this article, we will learn in-depth about receivables, including their definition, examples, types, and much more.
What are the Meaning of Receivables ?
Every business organization needs adequate working capital to run the day to day activities. Without adequate working capital, a company cannot conduct its day-to-day operations properly. And an important component of this working capital is receivables.
For any business that sells products or services on credit, managing receivables is a very important task. Receivables are significant since they are one of the most widely owned company’s liquid assets. They are also one of the biggest assets for several businesses.
Receivables are created when goods or services are sold to another party on credit.
Above all, we can say that when a person or organization recognizes the amount of money due from another person or organization for the sale of goods or services on credit or for other reasons, it is called receivables.
For Example:
July-01: Goods sold to Mr. Joe on credit $1000,
July-07: provided service to Mr. Jack on the credit of $500
Here total receivables: ($1000+ $500) =$1500
Types of Receivables
Transactions involving the sale of goods on credit or the provision of services on credit include business operations. And from these transactions, the receivables are generated i.e. the main source of receivables is the credit sales or services.
The classification of receivables is shown below:
1. Trade receivables.
- Accounts Receivables
- Notes Receivables.
2. Non-Trade receivables
- Trade Receivables:
Trade receivables are created for the provided services or sales goods on credit. There are two types of trade receivables in accounting. E.g. .:
i. Accounts Receivables:
Accounts receivables are when the seller receives a verbal assurance or promise of payment from the buyer for providing services on credit or providing goods on credit. It is expected that the money will be recovered within 30 to 60 days. Usually, they are the most significant type of claim held by a firm.
ii. Notes Receivables:
Notes Receivables are when the seller receives a written commitment from the buyer to provide services on credit or to supply goods on credit. Under the Transferable Deeds Act, receivable notes are usually ready for a period of 60 to 90 days. The principal is to be paid along with interest for the notes due to the debtor.
2. Non-Trade receivables:
Receivables generated outside trade receivables are Non-Trade receivables. These usually are not the result of the company activities. Therefore they are usually listed in the balance sheet and reported as separate items.
For example,
- Loans given to various parties.
- Unpaid dividends.
- Interest Receivable.
- Advances to employees etc.
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