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Discounting of Accounts Receivable

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Definition of Discounting of Accounts Receivable

Discounting Of Accounts Receivable Image 1

Discounting of Accounts Receivable

Short-term financing in which accounts receivable are used as collateral to secure a loan. The lender does not buy the accounts receivable but simply uses them as collateral for the loan. Also called pledging of accounts receivable.



Related Terms:

Accounts

‘Buckets’ within the ledger, part of the accounting system. Each account contains similar transactions (line items) that are used for the production of financial statements. Or commonly used as an abbreviation for financial statements.


Accounts payable

Money owed to suppliers.


ACCOUNTS PAYABLE

Amounts a company owes to creditors.


Accounts payable

Amounts owed by the company for goods and services that have been received, but have not yet been paid for. Usually accounts payable involves the receipt of an invoice from the company providing the services or goods.


accounts payable

Short-term, non-interest-bearing liabilities of a business
that arise in the course of its activities and operations from purchases on
credit. A business buys many things on credit, whereby the purchase
cost of goods and services are not paid for immediately. This liability
account records the amounts owed for credit purchases that will be paid
in the short run, which generally means about one month.



Accounts payable

Acurrent liability on the balance sheet, representing short-term obligations
to pay suppliers.


Accounts Payable

Amounts due to vendors for purchases on open account, that is, not evidenced
by a signed note.


Discounting Of Accounts Receivable Image 2

Accounts Payable Days (A/P Days)

The number of days it would take to pay the ending balance
in accounts payable at the average rate of cost of goods sold per day. Calculated by dividing
accounts payable by cost of goods sold per day, which is cost of goods sold divided by 365.


Accounts receivable

Money owed by customers.


ACCOUNTS RECEIVABLE

Amounts owed to a company by customers that it sold to on credit. Total accounts receivable are usually reduced by an allowance for doubtful accounts.


Accounts receivable

Amounts owed to the company, generally for sales that it has made.


accounts receivable

Short-term, non-interest-bearing debts owed to a
business by its customers who bought goods and services from the business
on credit. Generally, these debts should be collected within a month
or so. In a balance sheet, this asset is listed immediately after cash.
(Actually the amount of short-term marketable investments, if the business
has any, is listed after cash and before accounts receivable.)
accounts receivable are viewed as a near-cash type of asset that will be
turned into cash in the short run. A business may not collect all of its
accounts receivable. See also bad debts.


Accounts receivable

A current asset on the balance sheet, representing short-term
amounts due from customers who have purchased on account.


Accounts Receivable

Amounts due from customers for sales on open account, not evidenced
by a signed note.


Accounts Receivable

Money owed to a business for merchandise or services sold on open account.


Accounts Receivable Days (A/R Days)

The number of days it would take to collect the ending
balance in accounts receivable at the year's average rate of revenue per day. Calculated as
accounts receivable divided by revenue per day (revenue divided by 365).


Accounts receivable turnover

The ratio of net credit sales to average accounts receivable, a measure of how
quickly customers pay their bills.


accounts receivable turnover ratio

A ratio computed by dividing annual
sales revenue by the year-end balance of accounts receivable. Technically
speaking, to calculate this ratio the amount of annual credit sales should
be divided by the average accounts receivable balance, but this information
is not readily available from external financial statements. For
reporting internally to managers, this ratio should be refined and finetuned
to be as accurate as possible.



Allowance for doubtful accounts

A contra account related to accounts receivable that represents the amounts that the company expects will not be collected.


Allowance for Doubtful Accounts

An estimate of the uncollectible portion of accounts receivable
that is subtracted from the gross amount of accounts receivable to arrive at the estimated collectible
amount.


Average age of accounts receivable

The weighted-average age of all of the firm's outstanding invoices.


Average collection period, or days' receivables

The ratio of accounts receivables to sales, or the total
amount of credit extended per dollar of daily sales (average AR/sales * 365).


Balance of Payments Accounts

A statement of a country's transactions with other countries.


Chart of accounts

A listing of all accounts used in the general ledger, usually sorted in
order of account number.


Continuous Discounting

The process of calculating the present value of a stream of future
cash flows by discounting over a continuous period of time


Days in receivables

Average collection period.


Discounting

Calculating the present value of a future amount. The process is opposite to compounding.


Discounting

The process of calculating the present value of a stream of future
cash flows



discounting

the process of reducing future cash flows to present value amounts


Discounting

Calculating the present value of a future payment.


Discounting

The process of finding the present value of a series of future cash flows. discounting is the reverse of compounding.


IRA/Keogh accounts

Special accounts where you can save and invest, and the taxes are deferred until money
is withdrawn. These plans are subject to frequent changes in law with respect to the deductibility of
contributions. Withdrawals of tax deferred contributions are taxed as income, including the capital gains from
such accounts.


National Income and Product Accounts

The national accounting system that records economic activity such as GDP and related measures.


NOTES RECEIVABLE

Notes receivable are promissory notes that the company has accepted from its debtors. Most promissory notes pay interest. Those that are due within a year are shown under “Current Assets.” Those that mature in more than a year would be listed under “Long-term Assets.” If a note is being
collected in installments, the payments due within the next twelve months are shown as a current asset, and the remainder is shown as a long-term asset.


Notes receivable

Amounts owed to the company that have been formalized by a legal agreement called a note.


NUMBER OF DAYS SALES IN RECEIVABLES

(also called average collection period). The number of days of net sales that are tied up in credit sales (accounts receivable) that haven’t been collected yet.


Permanent accounts

The accounts found on the Balance Sheet; these account balances are carried forward for the lifetime of the company.


Provision for Doubtful Accounts

An operating expense recorded when the allowance for
doubtful accounts is increased to accommodate an increase in uncollectible accounts receivable.


Receivables balance fractions

The percentage of a month's sales that remain uncollected (and part of
accounts receivable) at the end of succeeding months.


Receivables turnover ratio

Total operating revenues divided by average receivables. Used to measure how
effectively a firm is managing its accounts receivable.


Temporary accounts

The accounts found on the Income Statement and the Statement of Retained Earnings; these accounts are reduced to zero at the end of every accounting period.


Unbilled Accounts Receivable

Revenue recognized under the percentage-of-completion
method in excess of amounts billed. Also known as cost plus estimated earnings in excess of
billings.


Factoring

The discounting, or sale at a discount, of receivables on a nonrecourse, notification
basis. The purchaser of the accounts receivable, the factor, assumes full risk of collection and
credit losses, without recourse to the firms discounting the receivables. Customers are notified to
remit directly to the factor.



 

 

 

 

 

 

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