In this article, we’re answering “Is accounts receivable an asset?” The short answer is “yes” but there are important nuances that you should understand.
We’ll break down these nuances for you below and we’ll also be answering common questions that we receive from our members on this topic as well.
This article is part of our free series on corporate banking solutions and features around the world, which you can access by clicking here.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Is Accounts Receivable an Asset?
- Examples of Accounts Receivable
- Accounts Receivable vs Accounts Payable
- How Does a Company Use Accounts Receivable?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
Is Accounts Receivable an Asset?
Yes, accounts receivable is an asset in account and financial reporting. This is because accounts receivable is money that customers owe to a company for products or services already delivered. As a result, accounts receivable are considered current assets that are not yet collected.
Examples of Accounts Receivable
There are several different examples of accounts receivable. However, it’s important to note that they all have one important characteristic in common, which is they result in another party owing money to the company that is counting the balance as an account receivable.
With this in mind, the most common examples of accounts receivable include outstanding invoices for products already sold, outstanding invoices for services already rendered, deferred payment arrangements, sales made on credit, and business-to-business transactions involving an extension of credit. Here is a closer look at these examples:
- Outstanding invoices for products already sold
- Outstanding invoices for services already rendered
- Deferred payment arrangements
- Sales made on credit, and
- Business-to-business transactions involving an extension of credit
How Does a Company Use Accounts Receivable?
A company (even an LP) can use accounts receivable in a number of ways, including managing cash flow, assessing working capital, managing collections effectively, making projections, and even reshaping their corporate credit policies.
How to Calculate Accounts Receivable:
To calculate accounts receivable, the receiving party should review all outstanding invoices and total the balance. This is the total accounts receivable. That said, this calculation can be taken one step further to calculate “net accounts receivable”, which considers an allowance for bad debts. In other words, net accounts receivable takes into consideration the fact that certain receivables may not be paid back.
Accounts Receivable vs Accounts Payable
The main difference between accounts receivable and accounts payable is that accounts receivable is an asset while accounts payable is a liability. This is because accounts receivable refers to payments that a company’s customers owe to it, while accounts payable refers to payments that a company owes to another party.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into if accounts receivable are an asset. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
Are Accounts Receivable a Liability or an Asset?
Accounts receivable is an asset not a liability. This is because accounts receivable are owed to the company. On the other hand, accounts payable, which refers to money that the company owes other parties, is a liability.
Are Accounts Receivable an Asset or Revenue?
Accounts receivable is an asset not revenue. This is because accounts receivable is owed to the company by the customer. Therefore, it will be converted to cash in the future, making it an asset for the company.
Why is Account Receivable an Asset?
Accounts receivable is an asset because it represents money that is currently owed to the company by customers. Importantly, accounts receivable represents money owed for products or services already delivered. In other words, payment for these products or services is already pending.
Are Accounts Payable Assets?
No, accounts payable are not assets. Instead, they are liabilities because they represent money that the company owes to another party. On the other hand, accounts receivable are assets because they represent money that other parties owe to the company.
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