ETFFIN Finance >> ETFFIN > >> Financial management >> Accounting

Understanding Due From Account: Definition & Usage

Due from account is a receivable account in the general ledger that records funds that are owed to the business. The account is normally used when amounts are owed between related companies.

Summary

Due from account is a receivable account in the general ledger that records funds that are owed to the business, normally between related entities.
Due from account is an asset account or a debit account. It is because it records the money that is owed to the business, which is an asset..
Due from account runs in conjunction with the due to account.

Features of Due from Account

Due from account is characterized by the following features:

1. Asset account

Due from account is an asset account or a debit account. It is because it records the money that is owed to the business, currently being held at related companies.

2. Records receivables

Similar to an accounts receivable account, the due from account records the receivables or incoming assets of the business currently being held at related companies.

3. In conjunction with due to account

Due from account runs in conjunction with due to account. The latter records all the funds that are due to other related companies.

Both run in conjunction with each other as a means to record the incomings and outgoings of the business, to separate the inflows from the outflows, and to keep a concise track of the transactions.

4. Provides a clear picture

The due from account provides a clear picture of the inflows of the business by separating the incomings from the outgoings of the business. It provides a clear financial picture of the balances due to related parties.

5. It is a ledger account

Due from account is a general ledgerGeneral LedgerIn accounting, a General Ledger (GL) is a record of all past transactions of a company, organized by accounts. General Ledger (GL) accounts account. It may or may not be separately listed on the balance sheet, depending on its significance. It may be grouped with other receivables.

6. Follows the accrual principle

Accrual principle is an accounting principleIB Manual – Accounting PrinciplesAccounting Principles for Investment Banking Analysts. A fundamental understanding of accounting principles is critical to creating any meaningful financial analysis. Analysis of mergers and acquisitions requires knowledge of accounting concepts. We build from the beginning and try to summarize and explain accounting that entails the recording of all transactions in the time period in which they occur, regardless of the date the actual cash inflow or outflow for the transaction takes place.

The due from account records all “receivables,” meaning it records all transactions that are to be received by the business, from related companies. It hence follows the accrual concept because it records the transactions in the time period in which they occur, and not when the actual inflow of cash or settlement of transaction takes place.

Due from Account vs. Due to Account

Due from account records the funds that are owed to the business, whereas due to account records the funds that are owed by the business.

Hence, the due from account is an asset account or a debit account, whereas a due to account is a liability or a credit account.

Due from account is also known as the intercompany receivables account, whereas due to account is also known as the intercompany payables account.

What are Nostro Accounts?

A nostro accountNostro AccountA Nostro account is a bank account that a bank holds with a foreign bank in the currency of the country where the funds are held. The term “nostro” is a is a type of due from account that records a bank’s total amount of deposits in foreign exchange being held at another bank.

Just like due from account is in conjunction with the due to account, nostro account is in conjunction with the “vostro” account, which is the “due-to” counterpart for the nostro account.