An accounting package is a type of business software designed to help businesses manage their accounting processes including invoicing, payroll, accounts payable, accounts receivable, and general ledger functions.
Accounts receivable (AR) refers to the balance of money owed to a firm for goods or services delivered or used but not yet paid for by customers. It is an essential component of a company’s balance sheet and is considered a current asset.
Accounts Receivable Financing is a short-term financing arrangement where a company uses its accounts receivable as collateral to obtain working capital advances.
An Accounts Receivable Ledger is a detailed listing of transactions for each customer, showing how much each customer owes. Each transaction that generates a receivable is recorded under that customer, making it possible to determine individual balances. The total balance in this ledger should match the corresponding figure in the General Ledger.
The Accounts Receivable Turnover ratio is a financial metric used to measure how effectively a company is managing and collecting its receivables.
Age analysis is a crucial component of the credit control system, enabling businesses to categorize and evaluate outstanding debtor accounts based on the length of time they have been overdue, ensuring timely follow-ups and effective credit management.
The allowance for bad debts is an estimate of the accounts receivable that a company does not expect to collect. This estimation is used to anticipate potential losses and adhere to the accounting principle of conservatism.
Allowance for Doubtful Accounts is a contra-asset account that estimates the portion of receivables that may not be collectible.
Asset-Backed Securities (ABS) are financial instruments backed by loan paper or accounts receivable originated by banks, credit card companies, or other providers of credit, often enhanced by a bank letter of credit or by insurance coverage from a third party.
The Average Collection Period is a key financial metric that measures the average number of days a company takes to collect payments from its credit customers.
A Bad-Debt Reserve is an offset to Accounts Receivable, with amounts that can be expected to be uncollectible. Businesses use this reserve to account for receivables that are not likely to be collected.
A cash discount is a reduction in the invoice amount offered to customers to encourage early payment. By offering this discount, businesses can enhance cash flow and reduce the risk of non-payment.
A charge buyer is an individual or entity that makes a purchase on credit, with the understanding that the amount owed will be billed and must be paid at a later date. This concept is closely related to credit buyers and credit orders.
The time, expressed in days, weeks, or months, that it takes to obtain payment of a debt by a customer.
The Collection Ratio measures the efficiency of a company's ability to collect its accounts receivable. It indicates the average number of days it takes to convert receivables into cash.
A commercial collection agency specializes in debt collection services for businesses, helping them recover past-due accounts from other businesses or clients.
A credit order is a transaction where goods or services are provided without immediate payment, rather, billing occurs at a subsequent time. This is a standard practice in many business transactions.
A sale made on terms in which cash is to be paid at an agreed future date. As the debtors, who are customers to whom credit sales have been made, pay, the debtors' control account balance will be reduced.
Days' Sales in Receivables is a financial metric that indicates the average number of days it takes a company to collect payment after a sale has been made. This ratio helps businesses understand the efficiency of their credit and collection processes.
Days' Sales Outstanding (DSO) is a financial metric that indicates the average number of days it takes for a company to collect payment after a sale has been made.
Debtor Collection Period, also known as Average Collection Period, is the average time it takes for a business to collect the money owed to it by its trade debtors. This period is critical for managing cash flow effectively.
Debtors refer to individuals or entities that owe money to an organization, often due to sales of goods or services. This concept is significant in accounting as it affects the balance sheet and requires careful management to ensure accurate financial reporting.
Deferred billing refers to the delayed invoicing of a credit order at the request of the seller. This practice allows buyers to receive products or services before the actual bill is due.
The term 'delinquent' refers to a financial obligation that is payable but overdue and yet unpaid. It can apply to various forms of payments, such as credit card bills, mortgage payments, and taxes. Delinquent accounts can lead to penalties and interest charges and might affect the credit score of the individual or entity responsible for the payment.
The direct charge-off method is an accounting technique used to write off specific bad debts when they are deemed uncollectible.
DUN is a term used to refer to the practice of requesting payment for past due amounts. It often involves reminding or urging the debtor to pay back what is owed.
EOM Dating refers to a specific arrangement in payment terms where all purchases made through a specific day of one month are payable within a set period after the end of the following month.
Factoring is a financial transaction where a business sells its accounts receivable to a third party (factor) at a discount, providing the business with immediate working capital.
The General Ledger (GL) is a key component of an organization's accounting system, serving as a comprehensive record of all financial transactions made over the life of an organization.
Invoice Discounting is a financial practice wherein a business sells its invoices to a third party, typically a factoring house, at a discount to obtain immediate cash. It differs from traditional factoring in that it does not typically include sales accounting and debt collecting services.
Liquid assets are assets that can be easily converted into cash without significantly affecting their value. They are essential for maintaining the liquidity of individuals and corporations.
The normal operating cycle is the period required to convert cash into raw materials, raw materials into inventory finished goods, finished goods inventory into sales and accounts receivable, and finally, accounts receivable back into cash.
A Note Receivable is a financial instrument representing a written promise from a debtor to pay a specified sum of money to the creditor at a future date or on demand.
This term refers to a partial payment of an obligation or an arrangement of credit terms between a seller and a buyer, where payment is expected at a later date and is not documented by a promissory note.
An open account is a type of credit agreement between a buyer and a seller where the seller provides goods or services to the buyer with the expectation of receiving payment at a later date. It is also referred to as an unpaid credit order or open credit.
The term 'outstanding' has various meanings depending on the context, particularly in accounting and finance, where it can refer to unpaid debts, checks not yet presented for payment, and stock held by shareholders.
The term 'past due' refers to an obligation or invoice that has not been paid or performed by its specified due date but has not yet reached a state of default.
A payable is an amount that is owed by a company to its suppliers or creditors, typically from the purchase of supplies or inventory (accounts payable), but it can also include amounts owed for other purposes such as bank loans (bank loans payable).
A payment on account is an advance payment or part payment towards an outstanding balance or debt, typically not linked to any specific invoice. It is often used in ongoing business relationships where frequent transactions occur.
Personal accounts are used to record transactions with individuals or entities, such as debtors and creditors. These accounts are essential for managing relations and obligations with people and organizations.
A quick asset is any asset that can be converted into cash within a short timeline, typically 90 days or less.
Receivables represent the amount of money owed to a business by its customers for goods or services delivered or used but not yet paid for. These are current assets recorded on the balance sheet, reflecting the business's right to receive payment.
A Receivables Aging Schedule is an accounting table that shows the amounts due from customers broken down by their aging period. This tool helps businesses monitor outstanding invoices and evaluate the effectiveness of their credit and collections processes.
The receivables turnover ratio measures how efficiently a company collects its average accounts receivable over a specific period. It indicates the number of times average accounts receivable are collected in a year.
The term 'recovery' in various fields refers to the period when economic activity picks up after a downturn, absorption of costs or collections in finance, and rising prices in investment markets.
A sales discount, also known as a cash discount, is a reduction in the price of a product or service that is offered by the seller to buyers as an incentive for prompt payment.
The Sales Journal, also known as the Sales Day Book, is a specialized accounting ledger used to record credit sales transactions. It helps businesses maintain accurate and organized financial records, facilitating the tracking and analysis of accounts receivable.
The sales ledger, also known as the debtors' ledger, is an accounting record that tracks the sales transactions and amounts owed by customers.
The Sales Ledger Control Account, also known as the Debtors' Ledger Control Account, is a summary account in the general ledger that consolidates all individual debtor balances from the sales ledger.
The sold ledger, often referred to as the debtors' ledger, captures all transactions involving sales made on credit. It helps businesses keep track of amounts owed by customers and ensures proper management of accounts receivable.
Trade debtors, also known as trade receivables, represent amounts owed to a business by its customers for goods or services delivered or used but not yet paid for. It is a key component in the working capital of a business.
Trade receivables, also known as accounts receivable or trade debtors, represent amounts owed to a business by its customers for invoiced amounts. These are classified as current assets on the balance sheet but are separate from prepayments and other non-trade debtors. A provision for bad debts is often shown against the trade receivables balance as per the prudence concept. This provision is based on the company's historical data of bad debts and its current expectations.
An uncollectible account is a customer account that cannot be collected due to the customer's unwillingness or inability to pay. Such accounts may be written off as worthless after several collection attempts, although further collection efforts may continue.
Working capital is essential for financing the day-to-day operations of a company, calculated as the difference between current assets and current liabilities.
