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7 1 Accounts Receivable and Net Realizable Value Financial Accounting
In contrast, notes receivable (an asset) is a more formal legal contract between the buyer and the company, which requires a specific payment amount at a predetermined future date. The length of contract is typically over a year, or beyond one operating cycle. There is also generally an interest requirement because the financial loan amount may be larger than accounts receivable, and the length of contract is possibly longer. A note can be requested or extended in exchange for products and services or in exchange for cash (usually in the case of a financial lender). Companies, however, can expand their business models to include more than one type of receivable.Thus, when payment is made the amounts effect the balance sheet as well as the income statement.¨ A popular variant of the...