Accounts receivable is an asset account that represents the amount of money that a company is owed by its customers for goods or services that it has delivered, but has not yet received payment for. These customers could be individuals or other businesses that the company has sold goods or services to on credit.
Accounts receivable is typically recorded on a company’s balance sheet as a current asset, as it is expected to be collected within one year or less. It is usually classified as a short-term asset, as it is typically collected within a few weeks or months of being incurred.
To record an accounts receivable transaction, the company will credit the accounts receivable account and debit the sales revenue account. When the company receives payment for its accounts receivable, it will reverse this transaction by debiting the accounts receivable account and crediting the cash account.
Managing accounts receivable is an important aspect of a company’s financial management, as it helps to ensure that the company is able to collect the money it is owed in a timely manner and maintain a positive cash flow.