Balance Sheet - Receivables

Receivables are money customers owe to the company due to the credit sales instead of cash sales.

Accounts receivable is the amount that your customers owe you in total. If you do not sell goods or services on credit, you will not have accounts receivable. You - or your accounting program ­will usually keep a sub-ledger detailing who owes you and how old that account is. The balance sheet figure is only a summary.

Investor should pay attention to large amount of account receivables in balance sheet for any business because it often indicate difficulty of turning product or services into cash. This will also increase the changes of bad account.

The reference point of account receivables varies widely from industry and it also depend on condition of bank credit, which mean, when bank credit is strained the amount of receivables increases as the company extends more than the usual amount of credit to its customers.

As in the case of inventories, investor should learn to measure any business account receivables relative to annual sales, and changes over a period of year.

If the receivables seem unusually large in proportion to sales, it may indicate an unduly liberal credit policy has been pursued which may resulted in losses due to bad account.

In analysis of a balance sheet, investor should look closely on discounted receivables as the equivalent both of assets and liabilities.