“Receivable” Concept in Accounting

This free online accounting training tutorial will help you to learn:

  • Receivable Concept in Accounting
  • Types of Receivable
  • What is Accounts Receivable
  • What is Notes Receivable

Receivable is a most common word in the accounting world. The word receivable means the amount of money which is payable from any individual or organization. Receivable are monetary claims which are expected to receive in cash.

Receivable has basically categorized into two sections:

  • Accounts receivable
  • Notes receivable

Accounts receivable:

Accounts receivable also called business accounts receivable. Accounts receivable means the monetary amounts which are owed by clients or payable from clients. If any company provide services or sell their product to the client on account money is not yet collected then accounts receivable is created.

Company provides services to the clients on account from the expectation that this receivable will be received in cash within one month or two months. In the general ledger the accounts receivable works as control account by summarizing the total amounts of accounts receivable of all clients who are owed to the company. Accounts receivable accounts of each individual customer also maintained by the subsidiary ledger of any company. The company can deal with many claims. Among all claims the accounts receivable is most important claim. Account receivable is usually recorded in the balance sheet as an asset .Recognizing, valuing, and disposing accounts receivable are the most 3 important function of account receivable.

Notes receivable:

Notes receivable is another claim which is held by the company. Basically notes receivable are such claims for which formal devices of credit are issued as proof of debt. These claims are formal claims then accounts receivable claims. The debtor of notes receivable is obligated to pay interest to the creditor at specific date. The notes receivable claim can be extended to 60-90 days. In the notes receivable there is a written document as the proof of this claim which is known as promissory note. The promissory notes refers that if the debtor fails to pay the payable amount within allocated time then the creditors can claim on debtor™s assets. Generally notes receivable is due for one year that why it is treated as currents asset. Notes receivable which is larger than one year one operating cycle is considered as long term asset. In that case the portion of long term notes payable which is due in one year is current asset ant remaining portion is long term asset.

The accounts receivable and notes receivable which are due from sales transaction are known as trade receivable.

Besides accounts receivable and notes receivable there are also some other receivables which are ranges to different types of claims.

For example it could include amount due from employees or advance paid to employees or other companies, interest receivable, refundable income taxes etc. other receivables are generally considered s long term assets but if they are receivable within one year then these receivable will referred as currents assets. Such receivables are basically isolated from trade receivable. For this reason other receivables are reported as separate account in the balance sheet. After current assets and before capital assets, the long term receivables are generally recorded in the balance sheet.







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