When Initially Recorded, the Typical Accounts Receivable is Valued at…
Accounts receivable is a term used in accounting to represent the amount of money owed to a company by its customers or clients for goods or services provided on credit. When initially recorded, accounts receivable is valued at the full amount owed by the customer.
The value of accounts receivable is determined by the original invoice amount, which includes the price of the goods or services, any applicable taxes, and any other charges or fees. This amount is typically recorded in the company’s books as a current asset.
Accounts receivable is usually recorded at its gross value, meaning it is not adjusted for any potential bad debts or allowances for doubtful accounts. This is because at the time of recording, the company expects to collect the full amount owed from its customers.
The value of accounts receivable can change over time due to various factors. For example, if a customer fails to make a payment within the agreed-upon terms, the company may need to adjust the value of the accounts receivable to reflect the likelihood of collecting the outstanding amount. This is done by creating an allowance for doubtful accounts, which is a contra-asset account that reduces the total value of accounts receivable.
FAQs about When Initially Recorded the Typical Accounts Receivable Is Valued at:
1. Why is accounts receivable initially recorded at the full amount owed?
Accounts receivable is initially recorded at the full amount owed because at that time, the company expects to collect the entire outstanding balance from its customers.
2. What happens if a customer fails to make a payment?
If a customer fails to make a payment within the agreed-upon terms, the value of accounts receivable may need to be adjusted to reflect the likelihood of collecting the outstanding amount.
3. What is an allowance for doubtful accounts?
An allowance for doubtful accounts is a contra-asset account that reduces the value of accounts receivable to reflect the potential uncollectibility of certain balances.
4. How is the value of accounts receivable adjusted?
The value of accounts receivable is adjusted by creating an allowance for doubtful accounts, which is based on an estimate of the amount that may not be collected.
5. What is the purpose of recording accounts receivable?
Recording accounts receivable allows companies to track the amount of money owed to them and assess their financial position.
6. Can the value of accounts receivable increase over time?
Yes, the value of accounts receivable can increase over time as new sales are made on credit.
7. How does the value of accounts receivable affect a company’s financial statements?
The value of accounts receivable is reported as a current asset on the company’s balance sheet and is also reflected in the income statement as revenue when payments are received.
