
👾 Game Master
6/17/2022, 5:04:54 AM
Account Receivable
What is Account Receivable?
Account receivable lies under the current asset section on the balance sheet. The current asset section contains assets that are expected to be used for business operations over the next year. Some examples other than account receivables are cash, cash equivalents, inventory, marketable securities, etc.
Account receivable is the total amount of money that the customers owe to the company and have not yet been paid in cash. In other words, account receivable stands for the total worth of goods or services bought on credit by customers.
It is worth noticing that companies record account receivables as assets on the balance sheet to mark an obligation for the customer’s future payment. Nonetheless, money under account receivables is not yet being recorded in the income statement, since the money is not officially collected by the company and thus is not a part of the revenue.
Here is an example of an account receivable:
The car manufacturer company Astral had signed a 5000 car (approximately $5 billion) contract with Not Important Company. However, since Not Important Company does not have that much cash now, it negotiated with Astral and both agreed that Not Important Company can receive the cars immediately and will pay $5 billion within 5 months. Therefore, although Astral’s income statement does not change immediately, its account receivable on the balance sheet will increase by $5 billion. Not Important Company’s Account Payable on the balance sheet will also increase by $5 billion.
