Example of accounts receivable (A/R)

Consider the following scenario of an electricity or water company’s accounting processes:

Customers are given resources like electricity by power companies, who bill the customers after they
have used the resources (electricity). Unpaid invoices will be recorded in the accounts receivables
section of the balance sheet while the companies wait for payment for the utilities delivered.

What is notes receivable?

Notes receivable is a common type of receivable, and it’s similar to the standard accounts receivable
except for the payment deadlines. With a conventional receivable, you would ordinarily give a
customer a two-month window to pay you back, but with notes receivable, the payment due date can
be extended up to a year or more.

In notes receivables, a promissory note is used to agree on a longer payment period between you
and the second party (the debtor). A promissory note helps enforce your legal claim to payment from
the debtor.

For the debt settlements achieved within the agreed time frame, no interest will be charged. If the
debtor asks for an extension of the payment period, interest will be set on a monthly basis.
This series of journal entries will repeat every year until the note is paid in full. On the balance sheet,
notes are normally divided into current and long-term categories. The amount due within the
following year is the current component of the notes, and the amount which has more than a year’s
time to be repaid is categorized as long-term notes.

What are other receivables?

Other receivables include interest receivables, salary receivables, employee advances, tax refunds,
loans made to employees or other companies, and advances on wages paid to employees.

Having an understanding of the different types of receivables can help you track who owes you what
and when—in a more structured manner. And that’s an essential step in ensuring you have the
finances you need to keep and develop your business!

Conclusion

Receivables management is often treated as an alternative accounting function that helps balance
the books. To optimize finance operations and optimize cash inflows, the finance team looks at
receivables as a strategic area of the business operations. Managing receivables is not easy, but
controlling the process drives business achievement in a positive direction.
HighRadius’ AI-Driven Autonomous Finance Solution allows you to eliminate manual steps and
streamline operations. AI-powered A/R can enable features like real-time data management that
help you get the latest details on customers’ financial health and predict credit risk outcomes.
Accounts receivable automation can help create a positive working capital impact for businesses by
improving cash flow, reducing payment delays and collection costs, and improving customer
relationships. By automating the accounts receivable process, businesses can manage their working
capital more effectively and improve their financial position.

FAQ
How are receivables different from accounts payable?
Accounts payable (AP) refers to the amount your organization owes a third party for stock or
services purchased on credit, while receivable refers to the amount that your company will be paid
later.

Where are other receivables recorded?

Other receivables, which have features similar to trade receivables, are recorded under current
assets on the balance sheet. Current assets are those that are estimated to be converted to cash in
the coming year.
Is other receivables debit or credit?
Other receivables are recorded as an asset. Hence, they remain a debit, as it is the amount due to
the company. Receivable is cash due to the company, from which it can sooner or later generate
benefits.

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