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KembaraXtra- Financial Terms- accounts receivable (trade debtors) refer to amounts owed to a business by customers for goods or services sold on credit. These balances arise from invoiced sales.
Accounts receivable are classified as current assets on the balance sheet because they are expected to be collected within a relatively short period.
They are distinguished from prepayments and other non-trade debtors because they specifically relate to normal trading activities with customers.
Companies often create a provision for bad debts against accounts receivable in line with the prudence concept. This provision estimates the amount that may not be collected from customers.
The provision is usually based on past experience and current expectations. For example, a company may estimate bad debts as a percentage of total credit sales during the accounting period.
Accounts receivable are classified as current assets on the balance sheet because they are expected to be collected within a relatively short period.
They are distinguished from prepayments and other non-trade debtors because they specifically relate to normal trading activities with customers.
Companies often create a provision for bad debts against accounts receivable in line with the prudence concept. This provision estimates the amount that may not be collected from customers.
The provision is usually based on past experience and current expectations. For example, a company may estimate bad debts as a percentage of total credit sales during the accounting period.
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