What is Account Receivable in Accounting

What is Account Receivable in Accounting

What is Account Receivable in Accounting

In accounting, an account receivable is an asset account which represents any money that your customers owe you for goods 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 are sold on credit the benefit given is the same that as the 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’ accounts as account receivables.

DateParticularP/RDebitCredit
xxxAccount receivable (customer or company name) xxx 
     Sales  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 the benefit transferred is the right to receive money now the cash will be debited and the customer account or account receivable will be credited.

DateParticularP/RDebitCredit
xxxCash xxx 
    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 them, 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 the profit and loss account in the period in which it is sustained.

In the 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

DateParticularP/RDebitCredit
xxxBad Debt xxx 
    Debtors Account  xxx
 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 and goods sold. Account receivable is recorded as an asset. Accounts payable represent money that the firm owes to others. For example, purchasing raw material from a supplier on credit or the payments due to the supplier. Account Payable is recorded as a liability.

How Accounts Receivable are Recorded?

The definition of account receivable in accounting is an asset that represents money owed to a company for goods or services that have been sold on credit. Account receivables are reported on a company’s balance sheet as part of its current assets.

In order to calculate a company’s net working capital, accountants subtract the total amount of account receivables from the company’s current liabilities. This calculation gives them an idea of how much cash the company has to pay its bills in the short term.

Accounts Receivable Journal Entry:

1. MTB ltd sold some goods to Mr A on credit. The calculated amount of the invoice, including all expenses and taxes, was $10000.

2. Sold goods to Mr James, a customer on the credit of $5000

3. Company sold goods to the customer on account $2000

DateParticularP/RDebitCredit
1.Account receivable (Mr A) $10000 
   Sales  $10000
 To record goods sold to Mr A on credit   
2.Account Relievable (Mr James) $5000 
    Sales  $5000
 To record goods sold to Mr James on credit   
3.Account receivable $2000 
    Sales  $2000
 To record goods sold to customers on account   

What is accounts receivable as in accounting?

Accounts receivable is the name for money that a company is owed by customers. This money is usually recorded as an asset on the company’s balance sheet. The company will usually have a policy for how long it will wait before writing off an account as uncollectible.

What is an example of accounts receivable?

Accounts receivable are amounts of money that a company is owed by its customers. The company records these amounts as an asset on its balance sheet. An account receivable example is sales made on credit.

Is Account Receivable an asset?

Yes, account receivable is an asset. It’s a claim on future cash flow from customers.

What is accounts receivable and payable?

Accounts receivable are amounts of money that a company is owed by customers for products or services that have been delivered but not yet paid for. Accounts payable are the amounts of money that a company owes to its suppliers for products or services that have been received but not yet paid for.

Is accounts receivable a debit or credit?

Accounts receivable is a debit because it represents an increase in assets.

What is another name for account receivable?

Accounts receivable are also known as trade debtors, unsecured debtors, and debtor accounts.

Is accounts receivable a revenue?

No, accounts receivable is not revenue. Accounts receivable is an asset on a company’s balance sheet. Revenue is the amount of money that a company brings in from its sales.

Is account receivable A liabilities?

No, account receivable is not liabilities. Accounts receivable are amounts of money that customers owe the company for products or services that have been delivered or used.

For more click here and if you are looking for full forms of different acronyms and words then check out this list you really gonna find this helpful. We also have an Essay on every topic, Check the complete list here. If you are Studying in Matric Free Video Lectures in MathsPhysics and English are here, and we have got you covered for I.COM Business Maths also. 

Leave a Comment

Your email address will not be published.

error: