Accounts Receivable is an Asset. It represents the sale of goods or services to a company’s customers or clients on account. The company has given additional time to the customer to pay the bill. An Asset has a normal debit balance. An Asset increases on the debit side and decreases on the credit side. Accounts Receivable amounts are generally received within 30 days, based on the terms the company sets for payment. Accounts Receivable is listed on the Balance Sheet in the Current Assets section.
What is an Example of Accounts Receivable?
A company sells $10,000 of Consulting Fees on account to a customer. The terms of the sale are that the customer must make a payment in full in 30 days. The journal entry to record the purchase is:
| Accounts Receivable | 10,000 | |
| Consulting Fees Revenue | 10,000 |
When 30 days have passed, the customer pays the company the full amount due. The journal entry to record the receipt of payment is:
| Cash | 10,000 | |
| Accounts Receivable | 10,000 |
The amount in the Accounts Receivable account is decreased to show the customer no longer owes this money to the company. The bill has been satisfied.
What is the Difference Between Accounts Payable and Accounts Receivable?
Accounts Payable is used for purchases from vendors and suppliers. Accounts Receivable is used to record sales to customers or clients. Accounts Payable is a liability, an obligation to pay. Accounts Receivable is an asset, a promise from a customer that the business will receive cash.
To learn more about Accounts Payable, check out this article:
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