Accounts receivables are regarded as the money that a firm bears the right to receive since it had already provided various clients with goods and services but had not received the payments. The status of a company’s accounts receivable balance relies entirely on the sector and business in which it functions as well as the strategic credit policies management set in place. The accounts receivables are typically in the form of invoices raised by the company and delivered to the clients for payment process within the agreed time frame.
Some of the impacts of accounts receivables are the balancing liabilities that it has on the business since it typically appears on the assets section of the balance sheet thus acting as a channel of offsetting the items that are likely to appear in the liabilities column. For instance, if the liabilities part of a balance sheet documents an accounts payable balance of close to $2000 for the inventories acquired, the account receivables would offset the amount thus making the net worth the same way it would be. However, the accounts debtors are also likely to have a negative effect on the business since the business will have to pay for the inventories and labor before delivering the goods and services (Michalski, 2012). Therefore, if the firm is not paid promptly then the industry might find itself experiencing money shortage hence the net worth may appear right on the paper, but the pressure will still be felt on day-to-day activities.
On the other note, Jackson (2010) notes that accounts uncollectible are regarded as loans, receivables or other forms of debt that bears virtually no opportunity of being paid. This can happen due to various factors including the debtor’s being bankrupt, inability to locate the debtor or lack of lawfully created documentation. It is likely to affect the business operations due to the losses that it establishes and instability within the firm.
Jackson, S. B., & Liu, X. K. (2010). The allowance for uncollectible accounts, conservatism, and earnings management. Journal of Accounting Research, 48(3), 565-601.
Michalski, G. (2012). Accounts receivable management in nonprofit organizations. Zeszyty Teoretyczne Rachunkowości, 68(124), 83-96.