Relationship between Account Receivables and External Balance Sheet
Account receivable is an integral account for the businesses that make sales on credit. A business may have thousands of account receivables from hundreds and thousands of customers. All the details of account receivables are stored in a summarized from in an external balance sheet. However the summarized information may not always be adequate for the mangers and they need to get more information about the receivable accounts.
There are certain factors due to which managers need to inquire about account receivables. Managers may want to know which accounts are current and within the certain credit limits, which accounts are slightly overdue and which accounts are seriously overdue. An overdue account is also called past due account and it can negatively affect the cash flow by causing a delay resulting in a risk of becoming a bad debt. Moreover a manager may wants to know whether the company’s policy regarding bad debt is consistent over the past few years. Manager may ask for the list of the customers owing money to the company to find out which customer owes largest amount of money to the business.
The above mentioned information is summarized in the account receivable section of the external balance sheet. These are recorded as the assets of a company as they needed to be get paid by the customers. Account receivable must be handled with care as they may have a negative effect on the business cash flow if the customer owing money to business goes bankrupt.
Other Related Accounting Articles:
- Affect of Assets and Liabilities on Business Cash Flow
- Offset Mortgage
- Savings Account
- Unrestricted Cash
- Accounting Control
- Overcapitalization
- Limitations of Financial Accounting
- Over leveraged
- Accounting Conventions
- Quality of Conformance
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