Where Does the Accounts Receivable Go on an Income Statement?

Accounts receivable -- also known as customer receivables -- don't go on an income statement, which is what finance people often call a statement of profit and loss, or P&L. Money that customers owe a company flows through the statement of financial position, also referred to as a balance sheet or report on financial condition.

Bookkeeping and Financial Reporting

When an organization sells goods or provides services on credit, a bookkeeper debits the customer receivables account and credits the sales revenue account. This makes sense because cash transactions don't give rise to receivable amounts. Sales revenue is a P and L component and constitutes the linkup between accounts receivable and an income statement. Besides a balance sheet and a statement of profit and loss, a business must publish a statement of cash flows and a report on changes in shareholders' equity at the end of a given period -- say, a month or fiscal quarter.

Significance

When an operating period doesn't bring an increase in corporate accounts receivable, investors could say that the business has stalled from a profitability standpoint and that inaction by senior managers might carry substantial risk. This exposure -- the other name for risk -- may lead to a cash crunch, investor exodus and the higher interest rate that often accompanies debt repayment difficulties and a nosediving credit score. Think of this as a credit card issuer that raises a customer's annual percentage rate if the client copes with financial tedium and can't settle obligations on time.

Accounts Receivable Procedures

Reporting customer receivables in the correct financial statement is not the only concern for a company's accounting department chief. Various initiatives precede the publication and recording of accounts receivable. These run the gamut from performing background checks on potential customers and verifying their financial records to monitoring shipping efforts, reviewing source documents for accuracy and consistency, and reporting transactional data on time. Source documents include bills of lading, purchase orders, contracts and customer invoices.

Tools and Technology

Corporate personnel who ensure that accounts receivable flow to the proper performance data synopsis -- the other name for a financial statement -- include accountants, financial managers, shipping clerks and budget supervisors. Warehouse managers, controllers and in-house treasurers also weigh in policy formulation with respect to accounts receivable. These personnel use tools as varied as customer relationship management software; enterprise resource planning programs; credit adjudication and lending management system software, also known as CALMS; and financial accounting, analysis and reporting software, or FAARS. Other tools include accounts receivable and payable management software, mainframe computers and categorization or classification software.

References

About the Author

Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.