Definition of Accounts Receivable:

Receivables are the company's right to receive a certain amount of cash in the future as a result of past events. Receivables are demands on other parties (subscriptions) due to the company conducting sales of merchandise or services on credit.

Classification of Receivables:

  1. Accounts receivable are company bills due to the sale of merchandise on credit. For the sale of merchandise on credit, the seller usually determines credit terms or terms of payment (Terms of Credit or Terms of Payment), for example, 2/10 – n/10 which apply to all subscriptions.
  2. Notes receivable are bills supported by the debtor's written promise to pay on a certain date.
  3. Other receivables are all claims arising outside the normal business of the company, such as receivables from employees.

Recognition of Accounts Receivable

The problem of the recognition of trade receivables includes two main issues, namely:

  1. When are receivables recognized. Receivables are recognized when there is a transfer of rights or handover of goods sold between the buyer and the seller.
  2. What is the value of trade receivables recognized. Trade receivables are recognized based on the exchange rate, namely the value that will be paid by the debtor at a predetermined time. In this case, what needs to be considered are the trade discount and the sale discount.

Recording of write-off receivables

Receivables are written off when management knows for sure that the debtor will not be able to pay off his debts due to, for example, being declared bankrupt by a court.

There are two methods for writing off uncollectible accounts, namely:

  1. Reserve Method/Indirect Method, With this method, at the end of each accounting period (end of month or year), the amount of possible loss due to trade receivables written off in the coming period is estimated.
  2. Direct Method,  With this method, any trade receivables that are written off are recognized as a loss.

WRITE OFF TRADE RECEIVABLES

The risk that may occur for a company that sells merchandise or services on credit is incurring a loss due to having to write off uncollectible trade receivables due to bankruptcy or bankruptcy experienced by the debtor.

A write-off of part or all trade receivables is possible by the creditor if the statement of bankruptcy or insolvency from the debtor has been ratified by the competent authority, namely PUPN (Court for State Receivable Affairs).

There are two methods used to record the amount of trade receivables written off way, namely:

  1. Indirect write-off method or allowance method With this method, at the end of each accounting period (end of month or end of year), the amount of probable loss due to trade receivables written off in the coming period is estimated.
  2. Direct Method, With this method any trade receivables that are written off are recognized as a loss.

The amount of the estimate can be determined in four ways:

  1. Determine the amount of x% of net credit sales. Net Credit Sales are Credit Sales – (Sales Discount + Sales Return) of credit sales for one accounting period.
  2. Determine the amount of x% of the balance of trade receivables at the end of the accounting period
  3. Determine the amount of x% of the average trade receivables balance in one accounting period.

The average accounts receivable balance is the balance of accounts receivable at the beginning of the period + the balance of accounts receivable at the end of the period divided by two.

  1. determined at a certain rupiah value, which is based on past experience.

Note: One of the four methods above is used and applied consistently.

Valuing Notes Receivable

As with trade receivables, short-term notes are reported at cash (net) realizable value. Estimating the cash realizable value and bad debt expense for notes is done in the same way as for receivables. The allowance for doubtful accounts is a contra account for notes receivable and trade receivables.

Disposition of Notes Receivable

  1. Notes can be held by the payee until the maturity date.
  2. The party making the note may fail to pay, so the paid party must make adjustments to the related account.
  3. The holder of the note can also accelerate the collection of cash from the note by selling it.

Disposition of Notes Receivable

Honor of Notes Receivable

    Notes are paid in full (honored) if the maker pays off the notes on the maturity date.

Dishonor of Notes Receivable

    Dishonored notes are notes that are not paid at maturity.

    Unpaid notes in full are not exchangeable (no longer negotiable).