The meaning of accounts receivable is a claim or bill that we can get from other parties. In bookkeeping, the types of receivables are listed in the financial statements if the person/company has yet to receive payment from the sale, loan, or other transaction.
Since it is an obligation, accounts receivable usually have a certain period to be paid by the debtor. However, payment terms will vary based on their characteristics and types.
In general, receivables arising from the sale of company goods and services, where the new party’s payment will be made after the sale and purchase transaction date.
This article will discuss accounts receivable, including the differences between accounts payable and accounts receivable and the types of accounts receivable in accounting.
What is the Difference Between Payable and Receivable
In business, there are two very similar terms: accounts payable and accounts receivable. Both words can be categorized as part of assets in the industry. But despite having almost the same naming, the fact is that accounts payable and accounts receivable are two very different things.
Debt is an obligation in the form of money that a person must pay to the creditor. Liability in business will usually be made if it impacts business progress, for example, by adding employees or adding production equipment, among others.
Furthermore, the debt incurred will be recorded in the balance sheet. The purpose of the loan will also be shown in the report. For example, if you borrow to buy a production machine, it means that it will increase the stock of products that will be sold to customers.
Meanwhile, trade receivables are claims a person has against another person or business entity that owns or must pay a certain amount of money against him within a certain period.
Receivables are included as current assets in the company’s balance sheet. This has an essential function for the company because it can act as loan capital.
What Are the Types of Receivables?
Generally, receivables are divided into three types: trade accounts receivable, notes receivable, and other accounts receivable.
- Accounts Receivable: Accounts receivable usually occur because of credit sales. It arises as a result of buying goods or services on credit. In general, the payment period ranges from one to two months.
- Notes Receivable: This receivable has a physical form of a formal letter. This type of loan has a bill of between 2-3 months. Debt settlement made within that time will not be subject to interest. However, if the debtor requests an extension of the payment period, interest will be charged according to a monthly extension.
- Other Receivables: This receivable is of a broader type, as it includes interest receivables, salary receivables, employee advances, and tax refunds. Due to their general nature, notes can be reported separately on the balance sheet.
Accounts receivable shows receivables arising from the sale of goods and services produced by the Company. What these accounts receivable want are bills paid in money. Therefore shipment of items to be stored is recorded as receivables once the items deposited have been sold out.
The accounts receivable from sales in installments will be separated into current and non-current assets depending on the installment period. If the installment period exceeds one year, it is not reported to exist assets but enters another group of assets.
This is the definition of accounts receivable, the difference between accounts payable and receivable, and the types of accounts receivable in accounting that can illustrate the obligation to pay loans to other parties.
Managing accounts receivable is not easy, but it can provide benefits and drive business achievement if done well.
Also, because receivables in accounting are current assets, they must be appropriately maintained to continue to benefit.