ACCOUNTS RECEIVABLE DEFINITION
When a business or an individual contracts your company or buys your product, they owe you money in exchange for that good or work. The result of this transaction, in which you sell and others pay you, is recorded as a current asset in accounts receivable.
Often described as an extended line of credit to your clients, accounts receivable is an asset account that is crucial for the well-being of your company and that is because it is directly responsible for the cash flow, business growth and financial health of your business.
Here at ProLedge, we offer complete bookkeeping solutions, including accounts receivable administration, so that you can rest assured your income is properly administered. Our experts have over 20 years of experience in the field and are passionate about helping you achieve success.
We can help you establish and run an accounts receivable department within your business. This way, you won’t have to rely on others to know what you’re owed. Work smarter with accounts receivable. We’re here to help you grow!
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All of the soon-to-be-paid income resulting from economic activity is registered in this account as a current asset. Here are some examples of accounts receivable transactions.
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With over 20 years of experience in the industry, we have seen and heard it all. Our vast experience gave us the opportunity to really know the field and to build the confidence needed to face any situation.
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Our world is ever changing and always on the move, which is why we offer you complete accounts receivable solutions both online and offline. You can find us in some of Texas’s biggest cities, but we are always one click away with our online option. Here’s where you can find our offices:
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ACCOUNTS RECEIVABLE PROCESS
Accounts receivable is an asset account, and the process starts when a business makes a sale. In response to that sale, the company sends an invoice to collect the money at a later date. They typically contain details such as the date, the name of the job/product, the amount of money that is due and, most importantly, the due date. These invoices also include payment instructions as well. This step is very important in the process as it’s the initiating step that signals the inflow of receivables. It is the starting point between the company-client relationship, and it tackles important data of current assets, which must be recorded accurately and timely.
The next step in the process is recording the receivables as a current asset. Due to its nature, that of signaling an inflow of money, the sum is recorded in the balance sheet as a current asset. This step is crucial in order not to lose track of the money you’re owed. It might seem easy to remember what you must receive, but when transactions multiply, you need a safe and sound system you can rely on, and that’s Accounts Receivable. A well-maintained ledger helps businesses stay organized and helps anticipate cash flow.
This is the step in which a business waits for the payments to be made, but this is an active process nevertheless. Many companies send out reminders or payment notices. The terms of the payments, which are clearly stipulated in the first step of the process, show the time frame within which clients have the obligation to complete payment. A business may choose to incentivize early payments by offering a discount. If the payment is not made by the time the due date comes, a business may choose to impose late fees, conduct a follow-up communication session or make more effort in order to receive the full compensation. Once the receivables successfully enter the business, the balance sheet is updated, and the amount is transferred to cash or the bank.
The last step of the process involves the reconciliation of the documents. The payments and proof of payments are linked to their respective invoices and they are reconciled with internal documents. This step makes sure that there are no errors or mistakes between what was recorded and what actually entered the business. Should any discrepancy show up, they are immediately investigated and resolved. It is important that you allocate special care to this step, as it involves the correct and accurate recording of documents. Accurate reconciliation helps maintain the integrity of financial documents, prevents and corrects mistakes, and ensures regulatory compliance.
MOST COMMONLY ASKED QUESTIONS
The main difference between the two is that one deals with the outflow of money and the other with the inflow of money. AP records the financial payables of a business and is marked as a liability in the balance sheet, while accounts receivable records the financial receivables of a business and is marked as a current asset in the balance sheet. In order to conduct good cash flow management, a business must perform both accounts. Here at ProLedge, we can offer you expert management for both accounts.
Once a sale has been made, the transaction is recorded in the balance sheet with an increase (debit) in accounts receivable. At the same time, the transaction leads to the creation of the Revenue account. This double-entry formula in the balance sheet ensures the correct transcription of transactions in accounts. Once the payment is made, accounts receivable is credited while cash or bank is debited. Keeping a clean and accurate double-entry of your records will help you during the tax season and ensure compliance. Our professional team of bookkeepers can perform this action for you.
The turnover ratio or, simply, turnover, is a financial instrument which measures the number of times a business has collected its accounts receivable balances during an accounting period. It does this by dividing net credit sales by the average entries, over a period of time. If the turnover rate is higher, that means the company was more successful in collecting its receivables. If the rate is lower, that indicates issues in the collecting step of the process. This rate is very important because it shows the financial health of a business, and investors are always interested in this ratio simply because it shows whether a company is worth investing in or not.
Accounts receivable is an asset account, as we have seen in the “Example of Accounts Receivable” section and Net Receivables refers to the total accounts receivable balance after a subtraction has been made in order to account for doubtful creditors. This balance shows the current assets without the potential non-collectible amounts, providing a more realistic and manageable image so that a business does not end up relying on money or current assets that it will not receive.
Accounts receivable automation is the process of using software in order to automate the processes. It includes the automation of invoices, provides electronic delivery, automates payment reminders and aids in the reconciliation process for the accounts. This helps minimize human errors, reduces the processing times, accelerates cash collection, and improves the efficiency of the process. Automating the process can be a great tool to reduce the workload and establish a digital balance sheet in place.
TESTIMONIALS
Working with ProLedge means professionalism and dedication. Check out what our clients had to say about our bookkeeping services!
We’ve been working with ProLedge for three years now and as a small business owner, their service has made a huge impact on both the accuracy of our bookkeeping and allowing us to focus on the things that we do well. Working with ProLedge was one of the best decisions we’ve made, and highly recommend them!
Using Proledge Bookkeeping Services to handle our bookkeeping has been excellent. My CPA focuses on year end tax planning and strategy and Proledge makes sure our books are clean and transactions are all accounted for. I’ve been a happy client for years now and they have always been easy to work with, transparent, and prompt in responding to any questions. Highly recommend!
I really like this company. They came to my rescue 3 years in a row, with my backed-up bookkeeping needs, in a timely and professional manner. It’s been a pleasure and a breeze working with Rebecca. I’m happy to have retained their services. I highly recommend them.
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Melissa K is an absolute GEM to work with. She’s been working with my company since the early stages and has provided a competency that I don’t for granted. Knowing that the company books are tidy, correct, and easy to understand is the ultimate security for a startup in my opinion. Melissa is definitely a part of the team and we’re happy to work with her as we grow!