Receivables

Receivables are financial assets that represent amounts owed to a business by customers or other parties as a result of delivering goods or services on credit. They arise from credit sales, notes received from customers, or other rights to receive payment. In financial reporting, receivables are typically classified as current assets when collection is expected within one year, with non-current receivables shown separately.

The major categories are accounts receivable (trade receivables), notes receivable, and other receivables such as interest receivable or tax refunds. Trade receivables arise from ordinary business operations; notes receivable involve formal written promises to pay with specified terms; other receivables cover non-trade amounts.

Measurement and impairment: Receivables are initially recognized at fair value, usually equal to the invoiced amount, and may include related transaction costs. They are subsequently measured at a cost basis, commonly amortized cost, and assessed for impairment. Under standards such as IFRS 9, companies recognize expected credit losses and set up an allowance for doubtful accounts; under US GAAP, similar allowances and bad debt expense apply. In practice, receivables are presented net of the allowance.

Management and risk: Effective receivables management includes credit risk assessment, setting credit limits, invoicing and collections, and monitoring aging. An aging analysis groups receivables by age to identify potential losses and adjust allowances. Receivables can be sold or factored to improve liquidity, and large exposures may be collateralized or securitized.

Financial reporting and liquidity: On the balance sheet, receivables contribute to liquidity and working capital. Changes in the allowance for credit losses affect the income statement and provide insight into credit quality and collection practices. Receivables intersect with revenue recognition, discounting policies, and payment terms.