What Does "Due from Account" Mean?
Due from account is a type of debit account that is normally maintained as part of the accounting records of a business. The concept has to do with funds that are currently being held in deposit at another company or institution. As it applies to international banking scenarios, a due from account may be referred to as a nostro account, one that currently holds deposits received from customers in that nation that are awaiting transfer to the bank account used as the company’s main or primary bank account. By making an entry in the general ledger that indicates the account amount, the company can still track its receivables even if they are not currently held in a single account.
Typically, the use of a due from account means tracking funds deposited in other institutions is coupled with the use of what is known as a due to account. In an international business model, this can be funds currently held in the primary account that are earmarked for transfer to the operating account of a subsidiary or an international branch of the parent organization. Both types of posts in the accounting records make it easier to track when money is transferred in or out, notes the source, and in general helps to keep the document trail for the transactions in a logical sequence.
A due from account can also be known by other names, depending on the nature of the transactions involved. It is not unusual for the activity to be referred to as intercompany receivables, which refers to the receipt of funds from customers by way of the subsidiary or branch location, with the understanding those funds will be forwarded to the parent. The use of the term nostro account draws on the use of the Latin term nostro which is generally translated into English as “due from.”
When used to best effect, the inclusion of a due to and due from account within the general ledger can make it easy to track funds that will be received from other company accounts as well as identify disbursement that are scheduled for subsidiaries and branch locations. The method adds one more level of accountability to the financial records and makes it possible to capture details that could be very helpful in the event of a financial audit. This approach can also be helpful in terms of calculating taxes owed by the business operations involved, since it helps to track exactly where and when the collected receipts were disbursed.
Due from account sounds a bit old fashioned, but it is indeed the the account that holds deposits made from customers. It is much like a trust account, used in real estate transactions. These deposits are placed in a trust account to wait for clearance to post in a company’s primary bank account. It is also known as account receivable.
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