In looking at Accounts Receivables and bad debts, for this week\'s discussion re

Question

In looking at Accounts Receivables and bad debts, for this week's discussion review the following web address: http://www.inc.com/guides/finance/20708.html

There are various articles about Accounts Receivables and how companies can improve the process of extending credit and collecting outstanding receivables. This week you have been asked to consult with a small business owner's start up company. The owner has asked you to develop a "best practices" policy that this company could use with regards to extending credit and collecting receivables. What would you recommend?

Explanation / Answer

The term receivables referes to amount due from individuals and companies. Receivables are claims that are expected to be collected in cash.The management of receivables is a very important activity for any company that sells goods or services on credit.Receivables are important because they represent one of a company's most liquid assets.For many companies, receivables are also one of the largest assets. Account receivable are amounts customers owe on account. They result from the sale of goods and services. Companies generally expect to collect accounts receivables within 30 to 60 days. They are usually the most significant type of claim held by a company. Bad Debts: The seller records these losses from extending credit as Bad Det Expense. such losses are a normal and necessay risk of doing business on a credit basis.Sometimes some receivables will become uncollectible. The accounting profession uses two methods for uncollectible accounts: 1. the direct write-off method, and 2. the allowance method. Under the direct write-off method, when a company determines receivables from a particular company to be uncollectible, it charges the loss to Bad Debts Expense. Under the allowance method of accounting for bad debts involves estimating uncollectible accounts at the end of each period.This provides better matching of expenses with revenues on the income statement.Cash(net) realizable value is the net amount a company expects to receive in cash from receivables.

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