Intricacies In Crediting Accounts Receivable In Your Accounts

The intricacies of accounts receivable credit are handled by accountants and other certified professionals. There job is to post information to a company’s accounts concerning debits and credits and balance the books of the company. This is done through years of training and practice and cannot be easily explained in a short article.

Credits and Debits

It should be understand that the word credit and debit can have opposite meetings when dealing with financial accounting. The terms themselves do not regard anything that is either bad or good. A credit and a debit is an accounting notation that is used to denote the receipt or payment of an item that is being posted to an account.

Accounting for Accounts Receivables

In financial accounting, a financial analyst or accountant will set up a ledger and other financial statements that track the balances of various company accounts. A company’s account receivables appear on the balance sheet of a company as a current asset of the company. It represents the amount of money that the company expects to receive as the result of its sales activities. The value of a company’s accounts receivables is an important measure of the company’s financial well-being.

Posting Accounts Receivables

The accountant posts items to the ledger regarding the status of its accounts receivables. These postings indicate the number of days between when an item has been billed and when it is paid by the receiver. It is the desire of the company to collect their accounts receivables as soon as possible. The lag between a sale and the collection should be less than 30 days for most accounts.

Accounting for Bad Debts

A company deals with the intricacies or particulars of its accounts receivables by managing its collections. When sales are made, the company’s accountants post the item to their receivables and make a corresponding deduction for bad debts or collections. This allows the business to ultimately write off any collections that it does not make on its receivables outstanding.

Allowance versus Direct Write-Off Method

The accounting method that an accountant uses to account for a company’s accounts receivables is either the allowance or direct write-off methods. The allowance method gives some flexibility in accounting for potential bad debts. The accountant sets up an offset account that is used to account for any collections not made.

The direct write-off method is simpler than the allowance method because it allows for bad expenses to be debited and collections to be credited on the same ledger sheet. Again, understanding the intricacies of accounts receivable crediting is important and should be undertaken by a qualified financial accountant.