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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

What are the three classifications of receivables?

To determine

Classifications of receivables

Receivables refer to an amount to be received in future from other entities or people. General classifications of receivables are accounts receivable, note receivable, and other receivables.

To describe: The three classifications of receivables.

Explanation

Three classifications of the receivables are as follows:

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account, such as 30 days or 60 days. In other words, accounts receivable are amounts customers owe to the business.  Accounts receivables are classified as current asset on the balance sheet of a business.

Note receivable:

Note receivable refers to a written promise received by the creditor from the debtor in formal, for the amounts to be settled within a stipulated period of time. This written promise is issued by a debtor or borrower to the lender or creditor. Notes receivable is an asset of a business. Notes receivable often used for the credit periods of more than 60 days.

Other receivables:

Common types of receivables (such as interest receivables, receivables from company officers and employees due to loans and advances, taxes receivables) other than accounts receivable and note receivable are called as other receivables.

If other receivables are expected to be received within a period of one year, then it will be classified as current assets. But if other receivables are expected to be received beyond a period of one year, then it will be classified as non-current assets but reported under caption investments.

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