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How Accounts Receivable Work Buyers, in rare occasions, do not have full cash to make their purchase especially if what your company sells is a big investment or service – like cars and more, and the most obvious move you’ll do would be to let them give you money in the near future. This act may put you in a good light in the eyes’ of the public with your magnanimous and unselfish behavior but what not everyone may know is that this step also acts as an advantage for the company in the form of the accounts receivable. When a customer plans to pay at a later date, the company’s accountants would have to record this accounts receivable and alert the corresponding debtors of their upcoming payment due monthly by invoicing them the information about the purchase.
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Aside from the purchase itself and the price of the product, the billing statement or the invoice will also give the customer a full view of their credit which includes shipping and taxes as well.
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Surely, this kind of knowledge isn’t as rare as you think it is as it can easily be searched through the internet and is even taught in the most basic Accounting classes. The Basic idea regarding Accounts receivable may seem quite easy but if you put the two types of methods on how to put these details on the books which includes cash-basis and accrual, then everything will surely be more complicated. You may be at loss at first how the company would be able to make money or gain advantage in accounts receivable and that can be answered through these methods of manipulating the entry and exit of money from the books of the company. Continue reading on this article and learn more about how cash-basis works, the most commonly used accounting method by companies. Amazingly, this Account Receivable management lends the company and the customer a hand in avoiding to pay a certain tax amount for a year and is more often fitter to be used during the end months of a year. This method can be explained easier through an example: think about a buyer who purchases a product from your company during the last quarter of the year, then he or she pays for it on January of the next year. What makes this method extremely beneficial for the company is its capability to allow the buyer and the seller to avoid paying the tax for that earning or that purchase until the next year. It is true that the techniques and methods for Accounts Receivable management isn’t limited to the cash-basis and accrual accounting, but the former’s topnotch effect is something that any company wouldn’t want to miss out on as it can be very convenient and helpful for both the company and the seller.