Accounts receivable is a significant element for running any business smoothly and knowing it becomes very crucial for accountants. It represents the money owed by customers for their products or services. It is a very significant asset for any company that can be converted into cash later helping companies to generate revenue and working capital for other operational expenses. That is why companies take it as an asset that secures credit and investment capital.
However many companies are still struggling to understand Is Accounts Receivable An Asset or a liability. To delve deeper into it we are here with this post. So, let’s get right into it.
Understanding Accounts Receivable
Accounts Receivable can be defined as the money owed by the customer for the products or services sold by the company. It represents the credit when a company sanctions a grace period for the buyer and lets them purchase things on credit that can be paid later. Once the company collects payments from the clients, it can be financed out from the company’s balance sheet and used for other operational expenses of the company. So, it generates revenue and is considered as a company asset.
Is Accounts Receivable an Asset
When it comes to knowing Is Accounts Receivable A Current Asset, you may put simp[ly “Yes”. Accounts receivable is an asset for the company as it reflects the amount of money owned by the customers of the company.
However, the cash may not be available with instant effect, still, it is considered an asset because it is claimed as future earnings of the company. The invoices will eventually converted into cash, even if not seen physically.
The accounts department ensures that the assets columns have some unpaid invoices as Accounts Receivable which can generate revenue after the completion of transaction.
What is an Asset and Liability
To know the answer to the query Are Accounts Receivable An Asset, it is better to clearly understand the term what is an asset or a liability.
| Assets | Liabilities |
| An asset is a resource owned by an individual or a company | On the other hand, liabilities are debt that an individual or an organization owes to someone else. |
| They can not be cash out instantly, but reap economic benefits in the future. | They are paid off after a certain time period either monetarily or in the form of services. |
| For instance: property, cash, and inventory, come under accounts receivable | For Instance: salaries, money owed to suppliers or vendors, and interest on debt are termed as liabilities. |
After knowing the facts about an asset or a liability, it is concluded that Accounts Receivable is an asset not liability as it is the sum of money, they get from their clients in future which can be used for other functional expenses.
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