Related Sponsors

What is Accounts Receivable?

Home » Accounting » Accounts Receivable » What is Accounts Receivable?

Under normal business operations, there will always be accounts receivable. Whether the business is a service, such as a physician�s office, or one that offers a tangible product, such as a business supply store, every business sells something. When customers buy that product or service, but defer payment until a later date, accounts receivable are created. Even though many consumers do not think of this as credit, any amount owed that is set up for later payment is a credit account. Most of these are not considered an account receivable until the invoice for that amount has been sent to the customer.

If there is any time whatsoever between the point of sale and the payment made, that transaction has an account receivable attached to it. Whether the statement for the transaction is delivered as the product is delivered, or mailed later, those transactions must be recorded to ensure that income is not lost due to inadequate bookkeeping practices.

Having a system in place to handle accounts receivable is relatively easy, whether data entry is in a ledger book or on a computer. Accurate data entry is the key to managing accounts receivable, both at the point of sale and when payments are made. For each transaction there will be a paper trail which is balanced daily. Reconciling the accounts receivable ledger to the accounts receivable control account should be handled monthly. This should be done by matching the beginning accounts receivable total, plus any charged sales, minus all payments made during the month to the final accounts receivable total. That balanced amount is posted as the new beginning accounts receivable total in the general ledger for the next month.

Next Page: How does Accounts Receivable work?

Related Accounts Receivable Articles