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Chapter 8: Receivables I. Classification of Receivables- A receivable includes all money claims against other entities which include people, business firms, and other organizations. A. Accounts Receivable 1. This is created by selling merchandise or services on credit. 2. The receivable is recorded as a debit because it is an amount that is owed to a business or an individual. Account receivables are expected to be collected within 30-60 days and are classified on the balance sheet as a current asset. B. Notes Receivable 1. The amount that customers owe, for which a formal, written instrument of credit has been issued for. 2. Notes are often used for credit periods of more than sixty days. A down payment is usually required at the time of the sale and the notes payable is used to collect the rest of the amount owed, usually on a monthly basis. 3. Notes and accounts receivables are sometimes also called trade receivables. C. Other receivables 1. Other receivables are listed separately on the balance sheet. 2. If they are to be collected within a year, they are recorded as current assets, but if collection is expected to exceed a year, they are listed as noncurrent assets and reported as Investments. 3. Common other receivables are interest receivable, taxes receivable, and receivables from officers and employees. II. Internal control of Receivables A. The four functions of credit approval, sales, accounting, and collections should be separated so that the accounting and credit approval functions serve as independent checks on sales. B. The person who handles the accounting for the receivables should not be involved with collecting the receivable to help reduce the possibility of errors and the misuse of funds.
Approximate Word count = 1121
Approximate Pages = 4.5
(250 words per page double spaced)
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