What is Account Receivable in Accounting
In accounting, account receivable is an asset account in which represents any money that your customers owe you for good and services they purchased on credit. Account receivable Account Receivables are recorded as current assets on the balance sheet.
Accounts receivable is a current asset account, which means money due to a company in the short-term. Do not consider this account as a revenue account. Under the accrual accounting system, whenever you record an account receivable you record revenue at the same time. But in a cash basis accounting system, there is no account receivable. In this system, a transaction doesn’t count as a sale until the money comes into the business.
Account Receivable Example:
When the goods or services sold on credit the benefit given is the same that is goods or services sold but the benefit received is not cash but a right to receive money from the customer. In this scenario debit is given to customers account as account receivables.
|xxx||Account receivable (customer or company name)||xxx|
|To record sales on credit|
When cash is received from the customer the right to receive money ceases so the benefit received is cash and benefit transferred is the right to receive money now the cash will be debited and the customer account or account receivable will be credit.
|Account receivable (customer or company name)||xxx|
|To record sales on credit|
What Happens When Accounts Receivable are not Collected?
When goods are sold on credit the business takes the risk that some of the customers may never pay for the goods sold to them when debtors do not pay the amount which is due to him, it is called Bad debt. This is a loss that occurred as a result of a risk taken in the normal operation of business it is charged to profit and loss account in the period in which it is sustained.
In case of bad debt, debtors are reduced but not a stock is written therefore only one entry is the pass whereby debtors are reduced and then expenses created title bad debts
Journal Entry for Bad Debts
|To record writing off debtors account and transferred balance to bad debt account|
Difference Between Account receivable and Account Payable:
Account Receivables represent money owed to the firm for services rendered goods sold. Account receivable is recorded as an asset. Accounts payable represent money that the firm owes to others. For example, purchase raw material from a supplier on credit or the payments due to the supplier. Account Payable is recorded as a liability.
Accounts Receivable Journal Entry:
1. MTB ltd sold some goods to Mr A on credit. The calculated amount of invoice, including all expenses and taxes, was $10000.
2. Sold goods to Mr. James, a customer on credit $5000
3. Company sold goods to customer on account $2000
|1.||Account receivable (Mr. A)||$10000|
|To record good sold to Mr. a on credit|
|2.||Account Relievable ( Mr. James)||$5000|
|To record good sold to Mr. James on credit|
|To record good sold to customer on account|
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