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Accounts Receivable: 15 facts




1 → ACCOUNTS RECEIVABLE represent amounts owed to a company by its customers for the sale of goods or services on credit


2 → They are reported as a CURRENT ASSET on the balance sheet


3 → Accounts receivable arise from credit sales, where customers are allowed to pay at a later date


4 → The balance of accounts receivable represents the total amount of outstanding customer invoices


5 → Accounts receivable are recorded at their NET REALIZABLE VALUE, which is the estimated amount the company expects to collect after considering potential bad debts


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6 → Companies often establish a CREDIT POLICY to set guidelines for extending credit to customers and managing accounts receivable


7 → The aging of accounts receivable categorizes outstanding invoices based on the number of days they have been outstanding


8 → Companies may offer DISCOUNTS for early payment to encourage prompt settlement of accounts receivable


9 → Accounts receivable are subject to periodic REVIEW and potential adjustments for uncollectible amounts


10 → Uncollectible accounts receivable are referred to as BAD DEBTS and are typically recorded as an expense called BAD DEBT EXPENSE


11 → Companies may use ALLOWANCE FOR DOUBTFUL ACCOUNTS to estimate the amount of potential bad debts and reduce the accounts receivable balance accordingly


12 → Accounts receivable turnover is a financial ratio that measures how quickly a company collects its outstanding receivables


13 → The DSO (Days Sales Outstanding) ratio measures the average number of days it takes for a company to collect its receivables


14 → Factoring is a financial arrangement where a company sells its accounts receivable to a third party, called a FACTOR, at a discount, to accelerate cash flow


15 → Accounts receivable financing allows a company to borrow funds using its accounts receivable as collateral


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