Question

What types of transactions give rise to accounts receivable?

What are the three classifications of receivables?

Answer 1

Required:

Account receivables arise from selling goods or services to a customer who does not pay cash immediately. Usually, the credit period is short ranging from few days to months or in some cases maybe a year. When a company extends credit to the customer, the sale is realised and the invoice is generated, but the company extends a time period to the customers to pay the amount after some time.

For e.g. Company X selling its product to Company Y at a credit sale, so that company Y can pay the amount after say 3 months. So, the amount will be recorded in account receivable and will be deducted from it as soon as payment is received.

Receivables can be classified as accounts receivables, notes receivable and other receivables (loans, rent receivable, term deposits).