What Is the Difference Between Accounts Receivable & Accounting Fees Earned?
Investors often appreciate it when a company joins the competitive fray head-on, taking a confrontational strategy to dodge rivals’ strategic bullets, attract customers and make money. An aggressive operational blueprint -- one aiming to increase things like sales, accounts receivable or accounting fees earned -- serves companies in various industries, whether they be banking, public accounting or manufacturing.
Customer receivables -- the other name for accounts receivable -- represent sums of money a business expects from clients, assuming they pay on time. If they don’t, the company must start a gradual process of receivable evaluation that goes from the recording of bad debt expense to outright account write-off. The last item means financial managers bring down the worth of the underlying customer receivables account, an operating loss for the reporting company. By recording bad debt, in-house credit managers are still hopeful the business eventually will recover part or all of the amount owed.
The term “accounting fees earned” applies to an organization that provides accounting services, running the gamut from bookkeeping to compilation, financial analysis, control advisory and regulatory compliance. Companies offering such services include public accounting firms, tax accounting advisers and management consultants focusing on accounting regulatory guidance. For the reporting business, accounting fees earned represent income. Bookkeeping touches on the way a company debits and credits financial accounts -- such as assets, debts, equity items, revenues and expenses -- to record transactional data. In a compilation engagement, an accounting adviser helps a client prepare financial statements that abide by regulatory guidelines, whether it be in appearance or in content.
While accounts receivable and accounting fees earned are distinct terms, both concepts may interrelate. For a public accounting firm, accounting fees earned remain accounts receivable -- or accounting fees receivable, to be more specific -- until the customer settles the debt. Both items also lead to the retained earnings master account, which interrelate with a balance sheet and an equity statement.
When a company ships merchandise on credit, a bookkeeper debits the customer receivables account and credits the sales revenue account. The entry to record the provision of accounting services on credit is as follows: debit the accounting fees receivable account and credit the accounting fees earned account. When customers make payments in both scenarios, the respective credit entries go to the customer receivables account and the accounting fees receivable account. The debit entry goes to the cash account, which makes sense because an accounting cash debit increases company money -- unlike the banking practice that reduces funds in a client’s account after a debit memorandum.