Glossary
What is accounts receivable?
Every invoice a customer has not yet paid adds to one number. It is the cash your business is waiting for.
Updated
In short
Accounts receivable is the money customers owe a business for goods or services already invoiced. In SimpleERP, each customer's balance is worked out from posted invoices, receipts and credit notes, never typed in.
Accounts receivable is the money customers owe a business for goods or services it has already invoiced. Each posted sales invoice adds to it, and each receipt or credit note reduces it. It is a current asset on the balance sheet, often called sundry debtors in Indian books. Watching it closely is how a small business keeps cash flowing instead of quietly financing its customers.
Accounts receivable: a worked example
Lakshmi Steel Furnitures sells 10 steel racks at ₹4,990 each to Ravi Stores in Coimbatore on 30 days' credit. The invoice posts:
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable: Ravi Stores | ₹58,882 | |
| Sales | ₹49,900 | |
| Output CGST 9% | ₹4,491 | |
| Output SGST 9% | ₹4,491 |
Ravi Stores pays ₹30,000 by UPI. The receivable falls to ₹28,882, the invoice shows as partially paid, and the balance moves into the 1 to 30 days bucket of the ageing report once the due date passes.
FAQ
Questions, answered
Is accounts receivable an asset or income?
It is an asset. The income is the sale, recorded when the invoice posts. The receivable records that the customer has not paid yet. When the customer pays, cash goes up and the receivable goes down, and profit does not change at that point.
What is a good level of receivables for a small business?
There is no single figure. A useful check is days of sales outstanding: receivables divided by credit sales, multiplied by the days in the period. If customers are on 30 days' credit and the figure is 55, collections are slipping and the ageing report shows who to call.
Can a credit note reduce accounts receivable?
Yes. A credit note for returned goods or an overcharge reduces what the customer owes. Apply it to the invoice it relates to, or to another open invoice of the same customer, or refund it if the invoice was already paid in full.
What happens to a receivable that will never be paid?
It is written off as a bad debt: the receivable is reduced and an expense is recorded. Do this only after real collection effort, keep the correspondence, and remember that GST already paid on the invoice is not automatically recovered by writing the debt off.
Related
Keep reading
Ageing report
Unpaid invoices or bills grouped by how long they are past due.
Read moreCredit note
A document that reduces an earlier invoice, for returns or overcharges.
Read morePayments & receivables
Receipts and payments allocated oldest first, receivables and payables ageing, and statements.
Read more
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