Non trade receivables definition
/What are Non Trade Receivables?
Non trade receivables are amounts due for payment to an entity other than its normal customer invoices for merchandise shipped or services performed.
Examples of Non Trade Receivables
There are several types of non trade receivables, of which these are the most common:
Amounts owed to a company by its employees for loans or wage advances
Tax refunds owed to a business by taxing authorities
Insurance claims owed to a business by an insurance company
Accounting for Non Trade Receivables
In all of the examples, the non trade items are typically not billed using the company's invoicing software; instead, they are recorded as journal entries. This is a key distinction, since there should be few (if any) journal entries impacting the accounts receivable account, while usually journal entries are the only form of transaction to be used in the non trade receivables account. Indeed, the use of a journal entry to record a transaction can be considered a key indicator that a receivable should be treated as a non trade receivable.
You should periodically evaluate the individual items recorded in the non trade receivables account to see if the company is still likely to receive full payment. If not, reduce the amount in the account to the level you expect to receive, and charge the difference to expense in the period in which you make this determination. This evaluation should be conducted as part of the period-end closing process. A separate reserve account is not usually used for this.
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Presentation of Non Trade Receivables
Non trade receivables are usually classified as current assets on the balance sheet, since there is typically an expectation that they will be paid within one year. If you anticipate that payment will be over a longer period of time, then classify it as a non-current asset. You may need to justify a long-term classification to the outside auditors.
If there is a large amount of interest receivable from a third party, consider recording it in a separate interest receivable account. If this amount is quite large, consider putting it in a separate line item on the balance sheet.