Accounts Receivables Receivables are defined as claims held against customers and others for money, goods, or services and may be classified as trade or nontrade. When a purchaser gives an oral promise to pay for goods and services sold, an accounts receivable is created. Notes receivables are written promises to pay a certain sum of money on a specified future date. Nontrade receivables are generally reported as Other Receivables on the balance sheet. The availability of discounts must be considered when measuring receivables.
Trade discounts represent reductions from the list or catalog prices of merchandise.
This means that a 2 percent discount will be recognized if the invoice is paid within 10 days of the purchase or invoice date, otherwise the total amount is due in 30 days. Most companies are not successful in collecting all of its receivables when credit is extended to its customers. Two methods that are currently used to account for receivables that ultimately may become uncollectible are the direct write-off method and the allowance method . Under the direct write-off method, the receivable account is reduced and an expense is recorded when a specific amount is determined to be uncollectible. The direct write-off method usually does not match costs and revenues of the period, nor does it normally result in receivables being stated at their estimated net realizable value on the balance sheet.