Receivables, also known as accounts receivable, are amounts owed to a business for goods sold or services rendered on credit. In essence, they represent the money that a company is entitled to receive from its customers for products delivered or services provided. Receivables are considered assets on a company’s balance sheet, as they represent future cash inflows expected to be received within a specified period.

Here are some key points about receivables:

1. Types of Receivables: There are typically two main types of receivables:
   • Trade Receivables: Amounts owed to a company by its customers as a result of credit sales of goods or services.
   • Non-Trade Receivables: Other amounts owed to a company, such as loans to employees, advances to suppliers, or tax refunds.
2. Recognition: Receivables are recognized on the balance sheet when goods are delivered or services are provided to customers on credit terms. This recognition creates an accounts receivable entry, reflecting the amount owed to the company.
3. Terms and Conditions: Receivables often come with specific terms and conditions, including payment terms (e.g., net 30 days), interest rates for late payments, and any discounts offered for early payment.
4. Monitoring and Management: Managing receivables is crucial for maintaining healthy cash flow and financial stability. Companies must monitor aging receivables to ensure timely payment and may employ collection efforts for overdue accounts.
5. Valuation: Receivables are typically recorded at their net realizable value on the balance sheet, which is the amount expected to be collected after deducting any allowances for doubtful accounts or bad debts.
6. Financial Analysis: Receivables turnover ratio and average collection period are common financial metrics used to assess the efficiency of receivables management and the effectiveness of credit policies. These ratios help evaluate how quickly receivables are converted into cash and the average time it takes to collect outstanding balances.
7. Impairment: Companies must assess receivables for impairment, recognizing losses on uncollectible accounts through the allowance for doubtful accounts. This allowance represents the portion of receivables expected to be uncollectible based on historical experience and current economic conditions.

In summary, receivables play a significant role in a company’s financial operations by representing future cash inflows from credit sales or services provided. Effective management of receivables is essential for maintaining liquidity, managing credit risk, and sustaining overall financial health.