An account receivable is money owed by customers Essay

Submitted By Liudmila-S
Words: 637
Pages: 3

1) An account receivable is money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for.
Other names that an account receivable can go Trade Receivable, Royalty advance, prepayments and accrued income, other receivable, receivable from related parties. Current (short term) or noncurrent (long term) which is determined by the date which the receivable is due.
2) Trade receivables means AR (from customers) Non-Trade are from others, not customers. AR are generally less formal current assets, due in 30-60 days, without interest. AR are generally based on formal, signed promissory notes with interest, current or long-term assets.

3) A contra account is a general ledger account which is intended to have its balance be the opposite of the normal balance for that account classification. A contra-asset account is the records of a portion company's receivables, which it expects may not be collected. There are two contra-accounts associated with Pearson’s trade receivables: Provision for bad and doubtful accounts and Provision for sales returns. The allowance for doubtful accounts is only an estimate of the amount of accounts receivable which are expected to not be paid. The actual payment behavior of customers may differ substantially from the estimate. Provision for sales returns is being used to anticipate the return of sales (Sales Return) is to establish the account "Provision and Allowance for Sales Return (Sales Return Reserves)". The amount of reserves is usually determined by multiplying a certain percentage of the sales, while the percentage of companies are determined based on experience in previous periods.

4) % of Sales (aka IS approach) calculation = AJE amount, which also = the BDE on the IS. Based on % of Sales (net or cr sales); a quicker, easier method, often used for Interim FS
% of Recs (aka BS or Aging) calculation = end ADA cr balance for GL & BS, not the BDE; AJE & BDE is a “plug” needed in the ADA GL account to result in the end cr balance needed.
Aging Sch: ADA balance is based on AR ages in Subsidiary Ledger; higher % used for older debt.

5) Pearson would extend credit to these customers based on their relationship with the customer. The customer may have a long standing business relationship which not extending credit to them could hurt Pearson’s business by the customer going to a competitor. The percentage of uncollectible may be…