CHAPTER 9 … Receivables

Introduction to Receivables

A. Receivables are monetary claims against businesses and individuals. These claims arise from selling goods or services on credit or from lending money.

1. Each credit transaction involves a creditor who sells something and obtains a receivable, and a debtor who makes the purchase and has a payable.

2. Exhibit 9-1 is the asset portion of a balance sheet, with receivables highlighted.

B. An account receivable or trade receivable represents an amount due from a customer.

1. An account receivable is an amount due from a customer for goods or services sold.

2. The account is classified as a current asset on the balance sheet.

3. A subsidiary ledger includes a separate account for each customer.

C. A note receivable is more formal than an account receivable.

1. A note receivable is a written promise to receive cash; a promissory note is a negotiable document that serves as evidence of the receivable.

2. A note receivable may be classified as either current or long-term, depending on its maturity date.

D. Other receivables may include loans to employees or subsidiary companies; these may be either current or long-term assets.

Objective 1: Design internal controls for receivables

A. Internal control over collections of cash on account is important.

1. Cash-handling duties should be separate from cash-accounting duties.

2. The bookkeeper should not also handle cash receipts. A bank lock box accomplishes the same control over receipts of cash.

3. The person posting the accounts receivable subsidiary ledger should not also handle cash receipts.

B. The credit department is responsible for evaluating and approving new credit customers as well as monitoring the payment