- Cash represents a current asset in accounting. Cash relates to checks received but not deposited, petty cash kept on hand for small purchases, other cash, and a company's checking and savings accounts. In accounting, cash represents the checking accounts deposited against when completing banking transactions.
- Accounts receivable represents income earned but not received. When a company performs services offering payment or credit terms to its clients, the accountant generates invoices when the work is complete. She mails these invoices to the clients with the payment terms listed on them. This causes the accounting system to create a transaction between sales and accounts receivable. The receivables account is debited by the amount of the invoice and the sales account is credited with the same amount.
- Payment terms refer to the credit terms a company extends to its clients. Depending upon the terms, clients may be required to pay an invoice in 10 days, 25 days, 30 days, 45 days, 60 days or some other period of time. Some companies offer discounts to clients who pay their invoices early, such as 2/10 Net 30. This equates to the client taking a 2 percent discount from the gross amount of the invoice if he pays the invoice in 10 days; otherwise the full amount is due in 30 days.
- Accounts receivables represent all unpaid invoices. When paid, all accounts receivable transactions become cash transactions in the accounting system. When a client pays an invoice, the accountant matches the check against an invoice in the accounting system. The accountant completes a transaction where she receives the income against the invoice, clearing it from the accounts receivable ledger. During this process, she credits the accounts receivables account by the amount of the invoice, thus clearing the invoice from the ledger. This creates a debit transaction in the cash account.
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