What are trade and nontrade receivables?

Trade receivables are amounts owed by customers for goods and services sold in the course of a firm’s ordinary business (trading) activities, including all accounts receivable and all notes receivable resulting from trade activities.  Trade receivables are distinguished from nontrade receivables, which are the total claims resulting from transactions or events that are not a firm’s ordinary business activity, such as dividends or interest receivable, advances to employees and claims for losses or damages.

Accounts receivable (A/R) are assets arising from the sale of goods and/or the rendering of services on open account in the ordinary course of business, the balance on balance sheet date showing the amount of revenue resulting from sales on open account and not yet collected at the end of the accounting period.  An open account is an unsecured loan to a customer arising through credit sales evidenced by a delivery note and invoice, subject to usual trade customs or specific terms as to discount and payment period.  All accounts receivable are trade receivables.

Notes receivable (N/R) are receivables in the form of unconditional written promises (promissory notes) to pay specified sums of money at future dates, usually with interest at a specific rate, arising from cash advances, customers’ purchases on credit, the refinancing of amounts coming due on accounts receivable, or when money is otherwise loaned.  Only the principal amount of a note is recorded as a note receivable; any interest owed as a result of the note is recorded as accrued interest.