Question

What are the three ways a receivable can be eliminated after billing is made to a customer?

Answer 1

A receivable can be eliminated after billing is made to a customer through payment, credit memos for returns, or writing off as bad debt.

Step-by-step explanation:

After billing is made to a customer, there are three ways a receivable can be eliminated:

1. The customer pays the invoice in full. This is the most common and straightforward way for a receivable to be eliminated. Once the customer pays the amount due, the receivable is no longer outstanding.
2. The customer returns the goods or services. In some cases, a customer may return a product or refuse to accept a service. When this happens, the company can issue a credit memo to cancel the invoice and eliminate the receivable. For example, if a customer returns a faulty item, the company may issue a credit memo to cancel the previous invoice and remove the receivable from their records.
3. The customer doesn't pay and the company writes it off as bad debt. Unfortunately, not all customers pay their bills on time or at all. When a company determines that a customer is unlikely to pay, they may decide to write off the receivable as a bad debt. This process involves removing the receivable from the company's accounts and recognizing it as a loss.

In conclusion, a receivable can be eliminated after billing is made to a customer by receiving payment, issuing a credit memo for returned goods or services, or writing off the receivable as bad debt.