Treatment of effects receivable in the accounting process

Typically, this agreement entered into by the buyer stipulates that payment must be made within 30 days. In recent years, the tremendous increase in the use of credit cards, issued by financial institutions to their customers, has done much to simplify these accounting transactions.

Banknotes, although not widely used anymore, are still important in wholesale trade and foreign transactions. Bills have certain characteristics that make them negotiable documents. A financial document is negotiable if it can be transferred from one person to another. This is achieved by endorsing the document holder and delivering it to the other party. Bearer documents are transmitted by delivery only. To be negotiable, a financial document or bill must have the characteristic that, in certain circumstances, the rights of the owner are inalienable, even if the rights of its predecessor were defective or null.

An invoice is a negotiable document in the accounting process. It is an unconditional instruction, in writing, issued by one person to another, whereby the latter is instructed to pay on demand, at a specified or specifiable future date, a certain sum of money, either to the order of the specified person or bearer. .

There are at least three parties to the accounting bills records, namely the drawer, the drawee, and the payee or bearer. The three parties must be different people; the same person may be a party to the bill in more than one capacity. For example, the drawer may specify that the money is to be paid to itself, therefore it is the drawer and paid simultaneously.

The definition of a bill stated that it could be extended to the ‘bearer’, in which case anyone in possession of the bill on the due date could claim payment from the drawee. This means that the right to receive payment for an invoice can be transferred to another person simply by giving it to them. If the word ‘bearer’ is crossed out and replaced by ‘order’ (relating to the possible negotiability of the document) it means that the drawee is instructed to pay the amount in question to the beneficiary, or to any person specified by him in writing, or to any owner specified later. This written specification must appear on the invoice itself (usually on the back) and is known as an endorsement. Therefore, within the accounting process, the invoice is considered to be a negotiable document.

When a business performs a large number of invoice transactions, it is not practical to make a separate journal entry for each accounting transaction. In such cases, a separate journal with the necessary columns is used as an auxiliary journal. Accepted banknotes are valuable documents and, like cash, must be properly controlled in an accounting system. They must be stored securely immediately upon receipt. The balance of the bills receivable accounting control account must be periodically compared with the bills book items and the bills in cash.

Notes receivable are current assets and are presented on balance sheets as such, along with other current assets. They are presented at their nominal value, less any possible provision for doubtful collection. Accounts receivable are often combined with debtors as a single amount, shown as debtors and bills. As in the case of debtors, any invoice that could be irrecoverable must be anticipated.

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