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    Monday
    Feb282011

    What are trade receivables?

    Trade receivables are amounts billed by a business to its customers when it delivers goods or services to them in the ordinary course of business.

    These billings are typically documented on formal invoices, which are summarized in an accounts receivable aging report. This report is commonly used by the collections staff to collect overdue payments from customers. In the general ledger, trade receivables are recorded in a separate accounts receivable account, and are classified as current assets on the balance sheet if you expect to receive payment from customers within one year.

    To record a trade receivable, the accounting software creates a debit to the accounts receivable account and a credit to the sales account when you complete an invoice. When the customer eventually pays the invoice, the accounting software records the cash receipt transaction with a debit to the cash account and a credit to the accounts receivable account.

    Trade receivables vary from non trade receivables in that non trade receivables are for amounts owed to the company that fall outside of the normal course of business, such as employee advances or insurance reimbursements. Also, most or all of the transactions passing through the main accounts receivable account are generated by the accounting system, as you create customer invoices and credit memos, whereas the transactions recording non trade receivables nearly always involve journal entries.

    Related Topics

    How do I calculate average accounts receivable?
    What are non trade receivables?
    What is a cash discount?
    What is a trade discount?

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