How to Determine Ending Accounts Receivable

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Accounts receivable is the result of selling goods and services on credit. Companies typically offer customers a certain number of days, most often 30, to pay outstanding balances from purchases. Companies must report the amount of open accounts receivable each month to stakeholders. Accounts receivable is an asset for companies because it represents potential future cash collected for use by the company. Accountants are responsible for calculating and reporting accounts receivable. Other employees will then use this information to send customer statements and collect the cash.

  • Set a cutoff time for reporting accounts receivables. The last day of each month is a common cutoff date.

  • Post all transaction relating to accounts receivable up to the specified cutoff date. Transactions include new receivables and payments received by customers.

  • Review the accounts receivable schedule to determine if any inaccuracies exist in accounts receivable accounts.

  • Remove all accounts receivable the company determines are uncollectable. Debit bad debts expense and credit the corresponding accounts receivable.

  • Create a new accounts receivable schedule. Review the report one final time prior to declaring the ending balance for accounts receivable.

  • Report the final number from the report in Step 5 as the ending accounts receivable for the current period. The figure will be on the company's balance sheet.

References

  • "Intermediate Accounting"; David Spiceland, et al.; 2007
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