Accounts receivable

“ Accounts with Customers
The balance owing us by a customer is an asset, and therefore a debit item.
Goods sold on account are charged to the customer because our claim against him constitutes an asset; at the same time the income account, Sales, is credited.
When a customer pays us on account, his account is credited and Cash is [Pg 87] debited, showing an increase of the asset Cash and a decrease of the asset Accounts Receivable. Such an entry is simply a transfer from one account to another, an increase of one asset offset by a decrease of another asset. ”

“ The customers or sales ledger is usually limited absolutely to customers’ accounts. Accounts with the proprietors, and with all other titles under which withdrawals for other purposes may be recorded, are almost invariably carried in the general ledger. Therefore, while most of the items entered in the sales journal are posted to the customers ledger, these withdrawal items must be posted in detail to the general ledger. Thus the total of the sales journal does not represent the correct debit to accounts receivable in the general ledger. ”

“ Experience demonstrating that income derived from merchandising and manufacturing businesses could not be computed on the basis of receipts and disbursements alone, treasury regulations were promulgated requiring the use of inventories in proper cases, and permitting the deduction of accounts payable when accounts receivable were brought into the income account. ”

“ The 'accounts receivable' of the debtor, that is, the amounts owing to him on open account, are, of course, as susceptible of preferential disposition as other property; and if an insolvent debtor arranges to pay a favored creditor through the disposition of such an account, to the depletion of his estate, it must be regarded as equally a preference, whether he procures the payment to be made on his behalf by the debtor in the account,-the same to constitute a payment in whole or part of the latter's debt,-or be collects the amount and pays it over to his creditor directly. ”

“ The company retained its accounts receivable and prior to September 30, 1917, it distributed among its stockholders, proportionately to their ownership of stocks, the cash received from the sale and the accounts receivable in kind. ”

“ However, the student should always supply mentally the contra of each entry shown in the group reference account. For the sake of clarity, the personal pronouns “we” and “us” will be used instead of the impersonal name.
Accounts with Cash and Notes Receivable.—Entries to the Cash and Notes Receivable accounts are comparatively simple and are shown in the following schedule:
Transactions with cash are self-explanatory. ”

“ An account title is often used in one business to include items not mentioned under that title in another business. One finds also terms and titles peculiar to particular businesses. However, there is a tendency towards a standardization of the terms used in balance sheets. It is the purpose here to present and explain those which are common to practically all businesses. These include the asset titles Cash, Notes Receivable, Accounts Receivable, Merchandise, Investments, Deferred Charges or Expense Assets, Furniture and Fixtures, Delivery Equipment, Buildings, and Land. ”

“ The two classes of customers should be kept separate because of the greater liability to loss in the one class than in the other. Before profits for the period can be correctly determined, it is necessary to estimate the probable loss on contracts closed during the period. In the balance sheet separate showing should be made of the reserve for this class of accounts receivable and the reserve for the other class. The estimated loss on the instalment accounts is of course a figure based upon experience, but a conservative policy requires that the amount should be fairly liberal. ”

“ Both of these conditions result in a decrease in the net worth.
On the other hand, every item of income, as when a sale of goods is made, is reflected in an increase of assets or a decrease of [Pg 58] liabilities. The result of every sale is usually an increase in the cash or in the claims against persons, the accounts receivable. The sale may sometimes result in a lessening of liabilities through a cancellation of the claims of creditors by means of the claims against customers arising out of the sale. This would be true when goods are bought from, and sold to, the same person. ”

“ Appellant urges that in Ohio 'only the excess of receivables and prepaid items over current payables' is actually taxed, and that the deduction of 'current indebtcdness' accounts for the amount of the Ohio assessment. The inference is sought to be drawn that the amount of accounts receivable taken into consideration in Ohio was thus larger than the amount assessed. ”

“ Often, especially in a growing business, only a part, sometimes a small part, of the year's profits is in property capable of division; the remainder having been absorbed in the acquisition of increased plant, quipment, stock in trade, or accounts receivable, or in decrease of outstanding liabilities. When only a part is available for dividends, the balance of the year's profits is carried to the credit of undivided profits, or surplus, or some other account having like significance. ”

“ Section 219.↑ The amount of this tax was somewhat larger than that which would result, as a matter of calculation, from the figures set forth in the Company's report. It is stated in the opinion of the District Court that the 'tax as actually assessed contained a duplication of the accounts receivable.' And it is conceded that the Commission did not deduct the Federal income taxes from the net income. ”

“ At certain times and in certain businesses the prevailing rate of exchange on the actual day, or the monthly average of daily rates, may need to be used to secure satisfactory results. With the use of the fixed average rate, as above, the totals of foreign sales and sales returns journals are converted into home currency and carried respectively as debits and credits to Accounts Receivable control, and credits and debits to Sales. ”

“ Where the foreign branch is merely a selling agency for the home office, and invoices must be made out at the home office in foreign currency, a convenient way to handle these accounts is to keep a separate set of records for each foreign currency. A foreign sales journal, customers ledger, and cash receipts journal, together with foreign notes receivable and sales returns and allowances journals, where necessary, will comprise all books of original entry needed to [Pg 553] secure sources for postings to the customers’ individual accounts in terms of foreign money. ”

“ Petitioner insists that 'good business practice' forbade the inclusion in the taxpayer's assets of the account receivable in question or at least the part of it which was subsequently found to be uncollectible. ”

“ Formerly, when credit was a considerably less important factor than now in commercial transactions, book-keeping was frequently limited to an account of receipts and payments of money; and in early times, before money was in use, to an account of the receipt and issue of goods of different kinds. Even now what may be called the “cash system” of accounts is almost exclusively used by governments, local authorities, and charitable and other institutions ”

“ The principle of the account-book consists naturally in the book forming a real account with debit and credit—like all accounts in ordinary book keeping,—in which is inscribed in a way which would be regarded as valid, having legal force the sums corresponding to the transactions effected either by being written out at full length, with the signature, or by marking in figures, and indicating at the same time the personality of the party making the transaction, or by means of stamps as we have just seen, or finally by some other way. ”

“ And be it further enacted, That it shall be the duty of the Register to keep all accounts of the receipts and expenditures of the public money, and of all debts due to or from the United States; to receive from the Comptroller the accounts which shall have been finally adjusted, and to preserve such accounts with their vouchers and certificates; to record all warrants for the receipt or payment of monies at the Treasury, certify the same thereon, and to transmit to the Secretary of the Treasury, copies of the certificates of balances of accounts adjusted as is herein directed. ”

“ These transcripts are intended to be statements made up by the accounting officers of the Treasury Department from the quarterly accounts rendered by the officer with whom the account is kept, after an examination and adjustment of such quarterly accounts, and the allowance or disallowance of the several items contained therein. ”

“ Methods of obviating both classes of risk by means of special receipts have frequently been suggested, but such receipts do not appear to have come into general use.
Theoretically, bankers are supposed to refuse accounts which are either expressedly or are known to be trust accounts. ”

“ Adjusting and Closing the Merchandise Records.—Unlike the method shown in the debit and credit schedule for merchandise in Chapter XIII, [Pg 117] the modern practice is to keep the merchandise record by means of the separate accounts used in the profit and loss statement, viz., Merchandise Inventory, Purchases, Inward Freight and Cartage, Returned Purchases, Purchases Rebates and Allowances, Sales, Returned Sales, and Sales Rebates and Allowances. ”

“ The accounting officers of the treasury act judicially upon accounts submitted to them, and no claim can be made for the repayment of allowances made by them in accounts which have been finally disposed of by them. ”

“ Such receipt or receipts, duly signed and delivered by such collector or deputy collector, shall be sufficient evidence to entitle such executor, administrator, or trustee, to be credited and allowed such payment by every tribunal which, by the laws of any state or territory, is, or may be, empowered to decide upon and settle the accounts of executors and administrators.Refusal or neglect to pay. ”

“ In like manner the Reserve for Doubtful Accounts is a suspense account because at the close of the fiscal period it becomes necessary to make an estimate of the probable amount of uncollectible items in order to appraise correctly the value of outstanding claims against customers. ”

“ As for practical purposes some limit must be placed upon the daily record of transactions, certain classes show only a record of cash receipts and payments, which must, when it is desired to ascertain the actual position of affairs, be adjusted by bringing into account those transactions which have not yet been completed by the receipt or payment of money. ”

“ The governing principle here is that only current items can be included in this group of assets when shown on the balance sheet. In accounting, as in economics, there is no distinctive scientific terminology. The economist makes use, for the most part, of every-day words and phrases. These are often open to misunderstanding and are sometimes capable of being used even for wilful misrepresentation. Recognition of this fact has made necessary a more careful definition of some terms. In the language of the street, almost any claim against outsiders may be spoken of as an “account receivable.” ”

“ And a true and accurate return of the amount of gross receipts as aforesaid shall be made and rendered monthly by each of such associations, corporations, companies, or persons to the collector of the district in which any such association, corporation, or company may be located, or in which such person has his place of business. ”

“ It will be observed, therefore, that in order to complete the record of the transactions by double-entry, it has become necessary to introduce into the ledger a third class of accounts, known as impersonal or nominal accounts. These accounts record the transferences of money, or of money’s worth, which, so far from representing a mere reshuffling of assets and liabilities, involve an increase in or a reduction of the amount invested in the business, i.e. a profit or a loss. Transactions representing profits are recorded upon the Cr. ”

“ Amounts credited to liquidating accounts in any year shall be available only for payments required in that year. Any unobligated balances in liquidating accounts at the end of a fiscal year shall be transferred to miscellaneous receipts as soon as practicable after the end of the fiscal year. ”

“ Every such company is required to report its gross and net receipts; and a specific provision is made that, if its road is only in part within the commonwealth, the report shall show what part is so, and what proportion the same bears to its entire length, apportioning the receipts accordingly. ”

“ When a law-abiding taxpayer mistakenly receives income in one year, which receipt is assailed and found to be invalid in a subsequent year, the taxpayer must nonetheless report the amount as 'gross income' in the year received. ”

“ Revenue Act 1916, § 2, 39 Stat. 757, 758; Revenue Act 1918, c. 18, 40 Stat. 1057. Ordinarily, at least, a taxpayer may not deduct from gross receipts a supposed loss which in fact is represented by his outstanding note. ”

“ Can it be possible that any business so carried on can suffer a reduction of 29 1/2 per cent. in its receipts without ruin? What would any business man, engaged in any business of a private character, think of a compulsory reduction of his receipts to the amount of 29 1/2 per cent.? ”