Receivable is an accounting term associated with the amounts that are owed to the business by other parties, mainly its customers. Receivables can be classified with respect to the nature of the transaction or with respect to their maturity structures.

Accounts receivable is the amount owed to a company by customers as a result of delivering goods or services. It occurs when a business makes sales on credit. This means that the business agrees to get cash from its customers later for goods or services delivered today.

Sales returns and allowances reduce the amount of accounts receivables since the customer delivers back the goods or the company waives a portion of its claim due to product defects.

Cash discounts are intended to encourage the customer to make their payment earlier. Companies often offer a cash discount to its customers if they agree to pay within a designated period. In other words, the opportunity to get a cash discount usually arises for a customer when a company either wants to encourage prompt payment or because of competitive reasons and also to
increase the chances of collection.

Bad debt expense is an income statement account that shows the losses incurred due to uncollectible receivables. Income statement of a firm is also affected by the uncollectible receivable amounts. The amount of expected  uncollectible receivables is reported in the income statement as an expense so that profit should not be overstated. This expense is recorded in bad debts expense account and reported as bad debts expense in the income statement.

This method of recognizing bad debts is used for company’s financial reporting objectives when the uncollectible debts are significant in nature. This means they are in material amount. Under this method, the company should make necessary adjustments at the end of its accounting year for the amount of losses it predicts as a result of making sales on credit to its customers. 

Percentage of sales basis is the percentage relationship between the amount of credit sales and estimated losses from uncollectible accounts.

Percentage of receivable basis is a percentage relationship between amount of account receivables and estimated losses from uncollectible accounts.

Aging of accounts receivable is the analysis of customer balances with respect to the length of time they have not been paid.

The other way in which uncollectible receivables can be calculated is through Direct Write-off Method, which is mainly used by relatively small and private companies. Under this method, a company does not estimate bad debts losses and does not use allowance account for the expenses based on estimates.

Factoring is the business of purchasing receivables from companies upon a fee for the services performed to manage and collect receivables. The most practiced method to sell receivables is the sale to a factor, also called as factoring. 

A factor is generally a bank or a finance company that purchases receivables from companies for a fee and then it collects payments directly from these customer receivables at their prescribed time. Factor is generally a financial intermediary.

The working of debit cards is slightly different than the working of credit cards.  Using a debit card is similar to paying with cash, except that the customers will  not have to carry cash with them. When debit card is swapped by retailer at the  point of sale terminal (POS) or cash counter, the bank balance of the customer is automatically reduced and the amount is transferred to retailer’s account. Hence there is no third party involve in debit card transaction.

Accounts Receivable Turnover Ratio measures the liquidity of accounts receivable and is calculated as net credit sales divided by net accounts receivable.

Average collection period is the average amount of time that a receivable payment is outstanding and is calculated as 365 days divided by receivable turnover ratio.

Another type of accounts receivable analysis receivable is a trend line of the proportion of customer sales that are paid at the time of sale, noting the payment type used. Changes in a company’s sales policies may shift sales toward or away from up-front payments, which therefore has an impact on the amount and characteristics of accounts receivable.

Promissory note is a written agreement or a commitment to pay a particular amount of promised money at a particular period of time. Normally this promissory note lengthens for the time period of 60- 90 days or sometimes even longer and hence debtor is required to pay interest on it. These notes receivable, along with account receivables, which results from credit sales transactions are sometimes known as trade receivables or just receivables.

Valuation of notes receivables is very similar to the valuation of accounts receivables. First, just as in the case of accounts receivables, the difference between the sales price and the cash equivalent price should be treated as deferred income as a contra-asset account, which should be allocated to the profit/loss accounts in each accounting period. As mentioned before, amortized cost principle in IFRS is also valid for notes receivables.

Both accounts receivables and notes receivables have different accounting treatments in the context of the tax system in Turkey. Turkish Tax Code deviates from IFRS provisions an done should take care of such deviations in preparing financial statements. Tax Code requires to use General Communiqué on Accounting System Application in accounting for accounts and notes receivables.

General Communiqué on Accounting System Application requires all receivables to be recorded at their face amounts. On the other hand, notes receivables are rediscounted in order to reduce their values to the actual values at the end of the relevant accounting period.