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Accounts Receivable

Accounts Receivable Accounts Receivable: A Short Explanation

An accounts receivable is a claim for money against a debtor which can be an individual, government entity, or business that is against the state.  It represents the money that is owed to a company from selling services or products through credit. Commercial borrowers apply value of their receivables and inventory as collateral to secure financing to produce and market their services or products.

There are three qualities that are seen in all accounts receivable claims:

• There is legal authority to bill for the amount that is owed

• Certain calculation methods, a fee schedule, or other methods are used to come up with an amount due

• There is enough documentation to support and enforce the accounts receivable. 

In most situations, the accounts receivable is executed through sending an invoice to a customer who then pays the value given within a certain time period. The seller records these payments from the accounts receivable with a sales ledger that describes the sales, money made, and money owed.

When accounts receivables are collected, they will be generally classified as reimbursements, revenue, abatements, or a refund to a reverted appropriation. Accounts receivable prepayments are look at as revenue received in advance unless it is a liability until after the transaction. 

Many states have their own statewide accounts receivable program that they use in order to monitor the state’s account receivables and their collection. Using these programs help coordinate systems, information, and procedures within various state agencies. 

Furthermore, they help procedures and policies for the collection and managing of different accounts receivable between these agencies. Finally they help compare the procedures and policies of different agencies to see whether they all show consistency within the statewide policies.

In some states, there are contingent accounts receivables the legal obligations are somewhat uncertain, but are more than likely to have a favorable settlement. These situations often include future determination such as a settlement or judgment. They can be reclassified based on how uncertain the accounts receivable or the validity of the accounts receivable.Legal classifications of an accounts receivable can happen when

• There is not enough sufficient documentation to substantiate the accounts receivable

• There are disputes about the validity

• There is no legal authority for the owed bill

At the end of the year, agencies or departments often have many responsibilities to make sure that all accounts receivable balances are correct. They do this by

• Assessing the owed amounts to the department, such as estimates, and when they expect the amounts to be collected

• Accrual time records for the amounts that are owed but not yet recorded to the government

• Reduce accounts receivable amounts for deferred amounts by recording adjusting entries, these amounts are not expected to be collected

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