Understanding Accounts Receivable for Board Members

Accounts Receivable

Why Board Members Need to Understand Accounts Receivable

By Leslie Milton, CPA, CA, LPA, Associate Partner

Interested in learning more about what financial literacy knowledge you should have as a board member? Check out our other articles on Financial Literacy, including:

The Importance of Understanding Financial Statements | Why Board Members Need to Understand Accounts Payable | Why Board Members Need to Understand Deferred Revenue and Contributions

All board members, including those involved with non-profit organizations, are held to a minimum standard of care and diligence when it comes to the finances of an organization. This is why, at a minimum, it is important for a non-accountant to understand what “accounts receivable” are on an internal financial statement.

Understanding Accounts Receivable

Accounts receivable represent amounts owing to the organization. For your personal finances, you would be aware of who owed you money and would take steps to collect that money on a timely basis.

As directors or stewards of the organization, you need to ensure or establish the same processes and procedures so that amounts owing to the organization are collected promptly as well. So, when you see a significant balance in accounts receivable in your internal statements, you need to ask:

  • Are the accounts receivable in the statements complete?
  • How long has the balance been outstanding?
  • Has it been subsequently collected?
  • Who owes us the money, and is it collectible?
    • If not, why not?
  • If there is a risk that the amounts won’t be collectible, should an allowance be reflected, and what impact would that allowance have on your overall results for the year?

As directors, you are generally not responsible for any of these matters, nor would you normally be expected to catch some of the finer details. However, as stewards of the organization, it is your responsibility to ensure that these questions are asked, as necessary, each month. As a board, you cannot meaningfully review and make decisions with respect to finances if the internal financial statements that you are using have not accurately addressed accounts receivable.