Special Uses
Companies can use their accounts receivable as collateral when obtaining a loan (asset-based lending). They may also sell them through factoring or on an exchange. Pools or portfolios of accounts receivable can be sold in capital markets through securitization.
For tax reporting purposes, a general provision for bad debts is not an allowable deduction from profit - a business can only get relief for specific debtors that have gone bad. However, for financial reporting purposes, companies may choose to have a general provision against bad debts consistent with their past experience of customer payments, in order to avoid over-stating debtors in the balance sheet.
Read more about this topic: Accounts Receivable
Famous quotes containing the word special:
“He’s leaving Germany by special request of the Nazi government. First he sends a dispatch about Danzig and how 10,000 German tourists are pouring into the city every day with butterfly nets in their hands and submachine guns in their knapsacks. They warn him right then. What does he do next? Goes to a reception at von Ribbentropf’s and keeps yelling for gefilte fish!”
—Billy Wilder (b. 1906)
“When we walk the streets at night in safety, it does not strike us that this might be otherwise. This habit of feeling safe has become second nature, and we do not reflect on just how this is due solely to the working of special institutions. Commonplace thinking often has the impression that force holds the state together, but in fact its only bond is the fundamental sense of order which everybody possesses.”
—Georg Wilhelm Friedrich Hegel (1770–1831)