Bookkeeping 101: What is Accounts Receivable?

September 22, 2020
Business man working over financial papers

Accounts receivable are an essential aspect of your business’s finances. Accounts receivable are legally enforceable claims for payment held by a company for goods supplied or services rendered that customers/clients have ordered, but haven’t yet been paid for.

What is Accounts Receivable?

Accounts receivable is goods, money, or services owed to a business. Accounts receivable doesn’t immediately occur. Instead, a company or small business will receive the goods or services after the transaction occurs.

You’ll find accounts receivable in the assets section of a balance sheet.

Difference Between Accounts Receivable and Accounts Payable

Accounts payable and accounts receivable have several differences.

 Accounts payable is:

  • A liability.
  • Considered cash outflows and credit purchases.
  • Money received by a company in the future for goods or services from suppliers on credit.
  • Relevant to bills payable and collectors.

Accounts receivable is:  

  • An asset. 
  • Considered cash inflows and credit sales.
  • Money received by a company in the future for goods or services rendered to customers on credit.
  • Relevant to bills receivable and debtors.

Is Accounts Receivable Revenue?

Accounts receivable is revenue, depending on how you construct your balance sheet. If you use cash-based accounting, you shouldn’t include accounts receivable in your revenue calculations. 

However, if you use accrual-based accounting, you can include payments as revenue after transactions involving goods or services are complete. You’ll record accounts receivable as revenue for accrual-based accounting on your balance sheet.

Where Can I Find Accounts Receivable?

You can find your accounts receivable on your balance sheet. You’ll list it as a current asset on the balance sheet or a long-term asset, depending on the time in which the transaction occurred.

What are the Other Types of Receivables?

There are at least 4 types of receivables most business owners use. They are: interest receivable, nontrade receivable, notes receivable, and trade receivable. 

Notes Receivable

Notes receivable, like accounts receivable, is an amount owed to a business. However, customers will sign a promissory note to provide proof of their debts. As a business owner, you can use a promissory note for legal purposes if the debt remains unpaid. 

Notes receivable can either be a current asset or a long-term asset. If notes receivable are due in a year or less, it is a current asset. If notes receivable are due in more than one year, it is a long-term asset. 

Other Receivables

Other receivables can be useful for your bookkeeping needs: 

  • Interest receivable  
  • Nontrade receivable
  • Trade receivable

Interest receivable is the amount of interest owed to a company. Like notes receivable, interest receivable is an asset on a balance sheet.  

Interest receivable payments aren’t payments that a company has received. However, they are due at a later date. Recording interest receivable on your balance sheet can help you determine the amount of interest owed to you.

Trade receivables are amounts owed for goods and services, which include both accounts receivable and notes receivable. Nontrade receivables are amounts outside of business transactions which comprise: 

  • Advances to employees
  • Claims for losses or damages
  • Dividends 
  • Interest receivable 

Work with the Pros

Accounts receivable are an essential part of bookkeeping. Work with the pros to avoid any problems with your bookkeeping needs.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.