Note 12: Trade and other receivables
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Receivables are amounts due to a company by its customers and others. Receivables can be broadly classified into trade-receivables and non-trade receivables. Trade receivables are those receivables which originate from sales of goods and services by a business in the ordinary course of business. Non-trade receivables are the amounts due from third parties for transactions outside its primary course of business i.
Receivables are normally trade accounts notes and other receivables assets but some may have a non-current depending on their maturity. Accounts receivable are current assets which represent amounts to be collected from customers for goods sold and services provided. When a company sells goods trade accounts notes and other receivables provides services, the customers rarely makes payment on spot.
Instead, they are required to make payment within a certain time period, called credit period. The terms that determine the due date and the discount available if payment is made by a certain date are called credit terms. When sales are made on credit, accounts receivable are created which are recorded through the following journal entry:.
The accounts receivable balance is presented on balance sheet net of any allowance for doubtful accounts as follows. When cash is collected from customer, the accounts receivable balance on balance sheet is reduced through the following journal entry:. Many companies allow customers certain cash discount when they make payment quickly. The cash discount depends on the credit terms.
Note receivable are receivables supported by a written statement by the debtor to pay a specified sum on a specified date. Like accounts receivable, notes receivable arise in the ordinary course of business; but unlike accounts receivable they are in written form. Notes receivable usually require the debtor to pay interest. They may be current and non-current. Testing was completed on 30 April and the software became operational.
JT had to settle another large liability in April which resulted in it not being able to pay the remaining invoice amount i. JT paid the interest and principal of the note receivable at its maturity. Conversion of accounts receivable to note receivable on trade accounts notes and other receivables May is booked via the following journal entry:. Following journal entry is made to account for receipt of note receivable principal amount and interest income:.