The functions of the accounts receivable
The functions of accounts receivable in accounting are as follows:
1.Recording Sales: Accounts receivable records the amount of money owed to a business by customers for goods or services sold on credit. It serves as a record of credit-based sales made by the business.
2.Payment Tracking: Accounts receivable tracks the payments received from customers. This allows businesses to monitor the status of outstanding invoices, aiding in cash flow management and reducing the risk of bad debts.
3.Credit Management: Accounts receivable plays a vital role in credit management. It helps businesses assess the creditworthiness of customers, set credit limits, and establish payment terms. By monitoring customer payment behavior, businesses can identify potential delinquencies or defaults. Because It will help to take proactive measures to mitigate the risk of bad debts.
4.Financial Reporting: Accounts receivable contributes to a business’s financial reporting. It appears as a current asset on the balance sheet, with the balance reflected in financial statements. The accounts receivable balance is also used to calculate important financial ratios such as the current ratio and accounts receivable turnover ratio.
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In summary, the primary functions of accounts receivable are to record sales, track payments, manage credit, and provide information for financial reporting.
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