Receivables: Types of Receivables, Calculation & Examples

In accounting, receivables are amounts owed to a company by customers or entities, representing the right to receive payment for goods or services. They are classified as assets on the balance sheet.

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What Are Receivables in Accounting?

Receivables are claims against customers and others for money, goods, or services. For financial statement purposes, companies classify receivables as either current (short-term) or noncurrent (long-term).

Companies expect to collect current receivables within a year or during the current operating cycle, whichever is longer.

They classify all other receivables as noncurrent. Receivables are further classified in the balance sheet as either trade or nontrade receivables.

A receivable is an amount due from customers for credit sales. Receivables are claims against customers and others for money, goods, or services.

The main sources of receivables are the normal operating activities of a business, i.e., credit sales of goods and services to customers.

3 Types of Receivables

Types of receivables are;

Current or non-current Receivables,
Trade or non-trade Receivables, and
Accounts or notes Receivables.

Current Receivables

Current Receivables are expected to be collected within a year or during the current operating cycle or accounting period.

Amounts due from officers, directors, and major stockholders arising out of sales and subject to the usual credit terms are normally considered current receivable.

Customer	Invoice Amount	Payment Terms	Due Date
Customer A	$1,000	Net 30	June 15
Customer B	$500	Net 15	June 8
Customer C	$2,500	Net 60	July 20
Customer D	$800	Net 45	July 5

In this example, the table includes columns for the customer’s name, the invoice amount, the payment terms (indicating when the payment is due), and the due date for each customer’s invoice. These are all components of current receivables, which represent the amounts owed by customers that are expected to be collected within a relatively short period, usually within one year.

Non-current Receivables

Non-current Receivables (long-term) are expected to be collected for more than one or two years.

When claims have arisen from transactions other than sales and current recovery is not assured, such items are Non-current receivable.

Borrower	Principal Amount	Interest Rate	Maturity Date
Company X	$50,000	5%	December 31, 2025
Individual Y	$10,000	3%	March 15, 2024
Organization Z	$100,000	4.5%	October 10, 2026

In this example, the table includes columns for the borrower’s name or identifier, the principal amount of the loan, the interest rate applied to the loan, and the maturity date of each non-current receivable.

Non-current receivables represent amounts owed to the company that are not expected to be collected within a relatively short period, typically extending beyond one year.

These receivables can arise from long-term loans, installment sales, or other financial arrangements where payment is anticipated over an extended period of time.

The company keeps track of these receivables separately from current receivables to reflect their long-term nature and different collection timeline.

Trade Receivables

Trade Receivables are amounts owed by customers for goods sold and services rendered as part of normal business operations.

Normally trade receivables do not involve interest, although an interest or service charge may be added if payments are not made within a specified period.

Advances to officers, subsidiaries, and employees.
Deposits to cover potential damages or losses.
Dividends and interest receivable
Common carriers for damaged or lost goods.
Customers for returnable items.

Customer	Invoice Amount	Payment Terms	Due Date
Customer A	$1,000	Net 30	June 15
Customer B	$500	Net 15	June 8
Customer C	$2,500	Net 60	July 20
Customer D	$800	Net 45	July 5

In this example, the table includes columns for the customer’s name, the invoice amount, the payment terms (indicating when the payment is due), and the due date for each customer’s invoice.

These components represent trade receivables, which are the amounts owed to a company from its customers for the sale of goods or services on credit terms within the normal course of business.

Trade receivables are typically short-term in nature and are an important component of a company’s working capital. The company uses this table to track and manage the trade receivables, ensuring timely collection and monitoring the payment due dates from its customers.

Non-Trade Receivables

Non-Trade Receivables arise from a variety of transactions and can be written promises either to pay or to deliver, for example-

Sales of securities or property other than .goods or
Advances to officers and employees.
Deposits to cover potential damages or
Common carriers for damaged or lost goods.

Certainly! Here’s an example table illustrating non-trade receivables:

Debtor	Amount	Due Date
Loan A	$50,000	June 30, 2024
Rent Deposit	$2,000	July 15, 2023
Employee Loan	$10,000	December 31, 2023
Vendor Refund	$1,500	August 10, 2023

In this example, the table includes columns for the debtor (the entity owing the money), the amount owed, and the due date for each non-trade receivable.

Non-trade receivables refer to amounts owed to a company that is not directly related to the sale of goods or services in the normal course of business. They can arise from various transactions such as loans provided to employees or external parties, rent deposits, or refunds from vendors.

These receivables are typically classified separately from trade receivables as they involve different types of transactions and may have different payment terms or conditions. The company uses this table to track and manage its non-trade receivables, ensuring timely collection and monitoring of the due dates for each debtor.

Accounts Receivables

Accounts Receivables are oral promises of the purchases to pay for goods and services sold. They are normally collectible within 30 to 60 days.

Customer	Invoice Amount	Payment Terms	Due Date
Customer A	$1,000	Net 30	June 15
Customer B	$500	Net 15	June 8
Customer C	$2,500	Net 60	July 20
Customer D	$800	Net 45	July 5

In this example, the table includes columns for the customer’s name, the invoice amount, the payment terms (indicating when the payment is due), and the due date for each customer’s invoice. These components represent accounts receivable, which are the outstanding amounts owed to a company by its customers for goods or services provided on credit.

Accounts receivable reflect the credit sales made by the company and are typically short-term assets that are expected to be collected within a relatively short period, usually within one year.

The company uses this table to track and manage its accounts receivable, ensuring timely collection of outstanding payments and monitoring the due dates for each customer’s invoice.

Notes Receivables

Notes Receivables are promises to pay a certain sum on a specified future date. They may arise from sales, financing, or other transactions. Notes may be short-term or longterm.

Borrower	Principal Amount	Interest Rate	Maturity Date
Company X	$50,000	5%	December 31, 2025
Individual Y	$10,000	3%	March 15, 2024
Organization Z	$100,000	4.5%	October 10, 2026

In this example, the table includes columns for the borrower’s name or identifier, the note’s principal amount, the interest rate applied to the note, and the maturity date of each note receivable.

Notes receivable represent formal written promises by borrowers to repay a specific amount of money to the lender at a future date. These notes can be issued for various reasons, such as loans provided by the company to other entities or individuals. They typically have specified interest rates and maturity dates, at this point, the borrower must repay the principal amount plus any accrued interest.

The company uses this table to track and manage its notes receivable, monitor the repayment schedule, calculate interest earned, and ensure the timely collection of principal and interest payments.

Important Journal for Receivables

1	Purchased good in cash
	Purchased A/C	Debit
	To Cash A/C		Credit
2	Purchased Specific Assets in cash
	Specific Assets A/C	Debit
	To Cash A/C		Credit
3	Goods Sold in Cash
	Cash A/C	Debit
	To Sales A/C		Credit
4	Sold Specific Assets in Cash
	Cash A/C	Debit
	To Specific Assets A/C		Credit
5	Purchased goods on account
	Purchased A/C	Debit
	To Accounts Payable-Name of creditor A/C		Credit
6	Purchased Specific Assets on account
	Specific Assets A/C	Debit
	To Accounts Payable-Name of creditor A/C		Credit
7	Goods Sold on account
	Accounts Receivable: Name of debtor A/C	Debit
	To Sales A/C		Credit
8	Sold Specific Assets on account
	Accounts Receivable-Name of debtor A/C	Debit
	To Specific Assets A/C		Credit
9	Issued a note to the Creditor for purchase on account
	Purchased A/C	Debit
	To notes Payable AC		Credit
10	Received a note from the debtor for sales on account
	Notes Receivable AC	Debit
	To Sales A/C		Credit
11	Received a note from Accounts Receivable
	Notes Receivable A/C	Debit
	Accounts Receivable Name of debtor A/C		Credit
12	Issued a note to Accounts Payable
	Accounts Payable-Name of the creditor	Debit
	To Notes Payable A/C		Credit
13	Received cash on Notes Receivable from debtor its maturity
	Cash A/C	Debit
	To Notes Receivable A/C		Credit
14	Cash paid on Notes Payable to Creditor at maturity
	Notes Payable A/C	Debit
	To Cash A/C		Credit
15	Discounted Note at the Bank with net interest revenue before maturity
	Cash A/C	Debit
	To Notes Receivable Discounted		Credit
	To Interest Revenue		Credit
16	Discounted Note at the Bank with net interest expenses before maturity
	Cash A/C	Debit
	Interest Expenses A/C	Debit
	To Notes Receivable Discounted		Credit
17	Discounted non-interest-bearing note at the Bank before maturity
	Cash A/C	Debit
	Interest Expenses A/C	Debit
	To Notes Receivable Discounted (Here interest expenses mean discount)		Credit
18	Collected notes Receivable discounted by Bank at maturity
	Notes Receivable Discounted A/C	Debit
	To Notes Receivable A/C (Cancelled the original notes receivable foe paid at maturity)		Credit
19	Dishonored not by Debtor or Accounts Receivable
	Account Receivable Name of debtor A/C	Debit
	To cash (Paid cash to bank for dishonored note)		Credit
20	Paid cash on notes payable at maturity
	Notes payable A/C	Debit
	Interest Expenses A/C	Debit
	To Cash		Credit
21	Dishonored the notes payable (Not for payment to creditor at maturity)
	Notes payable A/C	Debit
	To Accounts payable – Name of the creditor		Credit
22	Estimated allowance for doubtful account on accounts Receivable
	Bad debt Expenses A/C	Debit
	To Allowance for doubtful accounts		Credit
23	Written off accounts receivable against allowance for doubtful accounts as un-collectible
	Allowance for doubtful Accounts A/C	Debit
	To Accounts Receivable		Credit
24	Written off accounts receivable directly as Un-collectible
	Bad debt Expenses A/C	Debit
	To Accounts Receivable		Credit
25	Written off accounts Receivable for recovery
	Accounts Receivable A/C	Debit
	To Allowance for doubtful accounts/Bad debt Expenses (Reinstalled accounts receivable for recovery)		Credit
	Received cash from accounts Receivable
	Cash A/C	Debit
	To Accounts Receivable		Credit
	Or; Received cash from accounts Receivable with interest
	Cash A/C	Debit
	To Accounts Receivable		Credit
	To Interest Revenue		Credit

Receivables Turnover Ratio

Analysts frequently compute financial ratios to evaluate a company’s accounts receivable liquidity. To assess the liquidity of the receivables, they use the receivables turnover ratio. This ratio measures the number of times, on average, a company.

Difference between Pledging Receivables and Factoring Receivables

Points of Distinction	Pledging Receivables	Factoring Receivables
Definition	A pledge of accounts receivable creates a secured short-term loan through pledging accounts receivables as collateral to a financial institution.	Factoring entails the sale of accounts receivable at a discount. Although factoring is not a form of secured short-term borrowing, it does involve the use of accounts receivable to Obtain needed short-term funds.
Process	Pledging accounts receivables involve: Providing the list of A/R to a bank. Matching the collaterals terms and loan terms. Deducting margins and other deductions. Providing Net amount of Advance.	Factoring A/R involves a similar process, but only additional adjustments are necessary for factoring commission.
Interest Cost	The interest cost of A/R pledging is 2- 5% more than the prime rate	Factoring A/R involves commission and interest cost
Bad debt consideration	The borrower has to consider the bad debt loss as the borrower is still the owner of A/R.	The borrower doesn’t consider the bad debt as the A/R is sold to the factor.
Cost savings	Pledging A/R does not save any cost	Factoring saves; Administrative costs, and bad-debt loss