What is a Due From Account?
A due from account is an asset account in the general ledger used to track money owed to a company that is currently being held at another firm. It is typically used in conjunction with a due to account and is sometimes referred to as intercompany receivables.
- A due from account indicates the amount of deposits currently held at another company.
- It tracks assets owed to the company and is not used for the tracking of any liabilities or obligations.
- The due from account is typically used in conjunction with a due to account.
- Separating incoming and outgoing funds makes accounting easier.
Understanding Due From Account
A general ledger stores and organizes data, providing a record of every financial transaction that takes places during the life of an operating company. In it, investors will find credit and debit accounts. The due from account falls into the latter category.
A due from account holds assets in another firm’s account that can be considered as a receivable by the company that has the account. Due from accounts track assets owed to the company and are not used for the tracking of any liabilities or obligations. In the case of many businesses, due from accounts hold deposits made by customers.
A due from account can have various names, depending on the type of transaction. For example, it can be called intercompany receivables when money for goods or serves is received by a subsidiary and is on its way to being forwarded to the parent company.
In international business, the due from account can be referred to as a nostro account. Nostros, a term derived from the Latin word for "ours," hold deposits made by customers in one country before being transferred to the primary due from account held by the business in their home nation, in their home currency.
Nostro accounts generally hold funds in the currency native to the account's location and not the currency of the business’ home nation or bank. They are frequently used to facilitate foreign exchange and trade transactions.
Due From Account Vs. Due To Account
While the due from account tracks money owed to the company, the due to account is used to track obligations, such as funds, that are owed to another entity. The due from accounts focus on incoming assets, also known as receivables, while the due to accounts focus on outgoing assets, also called payables. The funds in a due to account are often designated for a particular purpose, such as to fulfill a debt obligation, prior to being transferred into the account.
At no time should either account ever reflect a negative balance, as these accounts track known obligations. If a negative balance occurs, the most likely culprit is incorrectly entered data. Meanwhile, if the account ever reflects a zero balance, this means there are no receivables or payables expected at that time.
Advantages of Due For Account
The primary reason for separating the incoming and outgoing funds is for ease of accounting. This keeps all incoming payments focused in one account, and outgoing in another. Each transfer can be marked with its source or destination and helps maintain a simplified paper trail if research is required, say in the event of an audit.