Question

At the end of the accounting period, accountants often need to estimate the receivables and payables to arrive at the net income. What are the methods to estimate the amounts?

Answer 1

The accountant has to estimate the receivables and payables to book the revenues and the expenses to calculate the net income.

The revenues which are not yet received and will receive in the future period. The accountant reduces the total revenues with the received payments and gets the receivables on account of Sales/Services. The other receivables like interest, dividend, etc which are taken as income in the Income Statement but not received in the current year are taken as receivables which will received in the future.

Like-wise, the expenses which are undertaken on account of cost of sales ie. purchases are taken to Income Statement to calculate net income. All those payments which are not paid in the current year are taken as payables and would be paid in the future period. Other dues like wages and salaries, interest due and dividend due on the end of the year but not paid are taken as payables in the balance sheet which will be paid-off in the future period. All these payables are left as liability in the Balance Sheet.