Net Receivables - Explained
What are Net Receivables?
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Table of ContentsWhat are Net Receivables?How are Net Receivables Used?Allowance for Doubtful AccountsBalance SheetAcademic Research on Net Receivables
What are Net Receivables?
Net receivables refers to the total amount of money owed by the customers of a company. It refers to the amount a company is confident it can collect from customers that owe the company. Net receivables are usually calculated as the total of money owed to a company by its customers minus bad debt or doubtful account (the money owed that might not likely be paid back). The higher the net receivables of a company, the higher the money the company is confident it can collect from debtors.
How are Net Receivables Used?
Net receivables are presented as the percentage of the total amount of money that the customers of a company owes it which the company is confident it can collect. For instance, if the net receivables are company A is 88%, it means 12% of the debt owed to it by customers are likely not to be repaid. The higher the net receivables of a company, the higher its chances of collecting back all the money owed by its customers. How well a company uses cash and how effective it is collection of debt is shown through net receivables.
Allowance for Doubtful Accounts
Doubtful accounts are a debt owed to a company by its customers that might never be paid. The allowance for doubtful accounts is subtracted from the accounts receivable of a company to arrive at net receivable. Accounts receivables represent the total amount of money owed to a total by its customers when the allowance for doubtful accounts is deducted, what is left is the net receivables. The allowance for doubtful accounts functions like a contra asset account which reduces the balance recorded as an asset.
The balance sheet of a company contains all the income, expenses, debts and revenue of a company for an accounting period. Net receivables are also recorded in the balance sheet, they are shown as an aggregated total. The net receivables are categorized as a current asset, but this balance is reduced when the allowance for doubtful accounts has been deducted.