Net Receivables Definition
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.
A Little More on What are Net Receivables
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.
References for “Net Receivables”