Accounts Receivable Key Terms

Manage your general ledger more effectively with accounts receivable key terms

Accounts receivable are any uncollected customer invoices and money owed to your company. They generally owe this money to your company for a good or service rendered. On the balance sheet, accounts receivable shows up as a current asset. You always record an accounts receivable as a debit in the receivables accounts first, then after the customer pays the receivable, you'll debit cash accounts and credit the receivables. The sales ledger is the place where you'll record this event. The direct write-off and allowance methods are the two ways you can reconcile the accounts receivables accounts.

However, before you begin the process there are a few key terms that can help you manage these accounts:

 

Goods and services

The reason the accounts receivables account exists is to record the money owed to your company for a good or service rendered. A good is something tangible that you can use or consume. A service is an intangible item that you do for a customer in return for payment.
Try: Review this clear "goods and services" tutorial at Social Studies for Kids.

Balance sheet

The balance sheet is the financial document onto which you record your accounts receivable accounts. It's listed on the balance sheet under current assets. The balance sheet is a full record of all the transactions by your company during a given time period.
Try: Examine the balance sheet primer at VA Interactive to understand this financial document.

Current assets

Current assets are the first section on the balance sheet. There are five major items listed under current assets. These are cash and equivalents, investments, accounts receivable, inventories and pre-paid accounts. Accounts receivable is a current asset because in most cases customers will pay off their accounts in 60 to 180 days.
Try: Evaluate the current assets explanations at the Motley Fool and Gaebler Ventures.

General ledger

The general ledger is where your company will record all financial transactions. You'll need to list accounts receivable in a sub-ledger, which would contain the accounts for each customer individually.
Try: Study the general ledger information from Business Town.

Direct write-off and allowance methods

The direct write-off and allowance methods are the two ways to account for bad debts in the accounts receivable accounts. When computing business taxes the direct write-off method and the allowance method must be used when estimating the potential losses on accounts receivable.
Try: Assess the information on the direct write-off and allowance methods at Cliff Notes.

Debits and credits

In the double entry accounting system, for every transaction there must be at least one debit and one credit entry. Sometimes there'll be multiple entries on the debit or credit side or both. Overall, the credits must equal the debits side of the general ledger.
Try: Examine the debits and credits tutorial at Net Books.

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