Today, you’ll learn how to calculate accounts receivable.
As a bookkeeper or accountant, you understand the critical importance of reporting a business’s finances with precision. One essential aspect of this task is calculating accounts receivable (AR).
AR represents the money that the business is owed by customers who have received goods or services on credit. To help you report AR effectively, let’s go through the step-by-step process of calculating it.
Step 1: Review Your Sales Records
Start by gathering all the sales records at your disposal. This includes invoices, sales receipts, and any relevant documents that show the sales made during a specific period – whether it’s a month, quarter, or year.
Step 2: Identify Outstanding Invoices
Your next task is to identify outstanding invoices.
These are the invoices that customers have yet to pay, and they directly contribute to your accounts receivable.
Step 3: Calculate the Outstanding Amounts
For each outstanding invoice, determine the specific amount owed by the customer.
This is the amount that you will add to your accounts receivable.
Step 4: Sum the Outstanding Amounts
Now, add up all the outstanding amounts from your sales records to calculate the total accounts receivable for the chosen period.
You can use the following formula to calculate accounts receivable:
Beginning Accounts Receivable + Sales - Collections = Ending Accounts Receivable
Here’s a table to illustrate this calculation for a hypothetical business over a three-month period:
|Month||Beginning Accounts Receivable||Sales||Collections||Ending Accounts Receivable|
In this example, the beginning accounts receivable for each month is carried over from the previous month.
Sales represent the total sales made during each month, Collections represent the payments received from customers, and Ending Accounts Receivable is the amount still owed by customers at the end of each month.
This method is useful for tracking how accounts receivable change over time and understanding the impact of sales and collections on the accounts receivable balance.
It’s an essential tool for maintaining healthy cash flow and monitoring customers’ creditworthiness.
Step 5: Verify Accuracy
Double-check your calculations to ensure accuracy. Ensure that you’ve considered all outstanding invoices and that your adjustments for bad debts are reasonable and based on historical data or industry norms.
Step 6: Record the Accounts Receivable
Finally, once you’ve accurately calculated your accounts receivable, it’s time to enter this amount into your accounting records.
Remember that accounts receivable is considered an asset on the balance sheet, representing the money your business is entitled to receive from customers.
By following these steps diligently, you, as a proficient bookkeeper or accountant, can effectively report accounts receivable. This not only helps you understand cash flow but also empowers you to ensure the financial stability and success of the business you serve.