Classification of Accounts Receivables

Money owed or owed to a person or organization is called an account receivable. Accounts receivable usually arise from the sale of goods or services on credit. There are 3 categories of Accounts Receivable as outlined below:


1. Accounts Receivable or Debtors: Accounts receivable are created as a result of providing services on loan, selling goods. Receivables are treated as principal commitments or commitments. It does not require a written document. Accounts receivable lead times range from 30-60 days. These accounts are considered as current assets of the organization.

2. Notes Receivable: Money due to a person or institution with the help of a written promise to pay it at a specified date in the future is called Notes Receivable. Notes receivable maturity is 60-90 days or more.

3. Other receivables: All types of non-performing receivables are called other receivables. Eg: interest receivable, receivable, rent, commission receivable etc.

Difference between Accounts Receivable and Notes Receivable:
Accounts Receivable:
1. Accounts receivable is the amount owed to another person or organization as a result of the sale of goods or services on credit through verbal promises.
2. Increasing sales is the main objective of accounts receivable.
3. It has no legal basis for an oral promise.
4. It is short term i.e. 1 month to 1 year.
5. Accounts receivable generally do not carry interest.

Notes due:
1. A note receivable is a written promise to pay a specified amount of money on a specified date as a result of the sale of goods or services on credit.
2. Not only increasing sales but also short-term investment can be the main purpose of every note receivable.
3. It has a legal basis for written promises.
4. It can be short term and medium term i.e. 3 months to 3 years.
5. Interest is charged on notes receivable.