Question

What is accounts receivable? What is notes receivable and how are they different than accounts receivable? How do creditors decide to extend credit to their customers? What processes do credit managers use to evaluate new customers? Now explain the allowance for doubtful accounts and provide examples.

Answer 1

when you sell goods on credit basis to borrower, then the money you are going to be received in future is called as accounts receivable.

When you given or taken funds to any external party, you will provided a proof note, called as promisory note for the payment, is considered as liability to you.

the credit period to a firm depends on many factors like nature of business, the credit worthiness of customer, credit collection policy, and the terms and conditions etc. Usually, suppliers consideres the credit worthiness of the customer and the nature of the business and fix credit policy.

The new customers usually do not offer credit period, initially they seek payment from the customers. If they provide proper surity, or proper repayment schedule, without any defaults, then the firm may offer credit to the customers. When the firm realises that some of the sales are going to become bad or doubtful assets, then, they may provide huge discount to the payer and collects the money whatever they paid, later the contracts are going to be erased.