What are Accounts Receivables?
Accounts receivables are the amounts that are collectible from the customers due to the credit sales that the company sells the products or services from credit sales. This outstanding amount ranges from a few days to a fiscal year and sometimes more than one year.
Companies allow their customers to pay for a reasonably extended period. In such transactions, customers sometimes receive a small discount for paying the due amount based on the credit term that the company provides.
Account receivable is classified as current assets in the company’s balance sheet since the company is expected to receive the payment from its credit customers within less than 12 months from the reporting.
What Are Assets?
Assets are resources belonging to the entity due to past events from which economic benefits are expected for the entity. Assets are economic resources that can be used at a company’s desire, and the owner can limit its use. Examples of assets are cash, account receivable, inventory, long-term investments, and so on.
Are Accounts Receivables an Asset?
Accounts receivables are a current asset as it is considered money owed to an entity by a customer and expected to be paid by them within less than one year. For example, a utility company issues the billing to its customers every month for the electricity consumption the customer uses every month.
The company will have to recognize the sales revenues on the amount that it is billing to customers. It also needs to recognize the account receivable of the same amount in the current assets of its balance sheet.
Accounts receivable is considered an asset because it can be converted to cash later. So, if there are more receivables, there will be more cash which leads to the growth of the business over time.
Is Accounts Receivables Revenue?
Revenues are the number of goods or services the company sells to its customers, whether in cash or kind. It is recorded in the company profit and losses statement when the control of goods or services is transferred to the customers.
A revenue account is considered an income statement account. Account receivable is the asset, and it is recorded in the balance sheet and not considered the revenues.
Is Accounts Receivable Liability or Equity?
Accounts receivables are assets, not a liability. It is presented under the current assets section in the balance sheet of the company liabilities present in the different sections of the balance sheet.
Assets are things owned by an entity, and liabilities are things that the entity owes somebody. Equity is the difference between assets and liabilities, so accounts receivable are not considered liabilities or equity.
Is Accounts Receivable a Tangible Asset?
The tangible assets are the physical cash, stock (inventories), vehicles, machinery, building, and so on that have a clear value and can be easily measured.
Accounts receivables are not considered tangible because it does not have the physical substant. Goodwill, patents, prepaid expenses, prepaid insurance are also not considered tangible assets.
What accounts are normally included in the Trade and Other receivable?
When it comes to presentation, account receivable is included with another receivable account, such as notes receivables and other receivables.
Accounts receivables are amounting that customers owe the entity for normal credit purchases. All of the amounts are expected to be corrected within 12 months from the report date. And if it is expected to correct more than 12 months, it is transferring that portion to the non-current assets.
Notes receivables are those customers who have signed formal promissory notes in acknowledgment of their debts. Promissory notes strengthen a company’s legal claim against those customers who fail to pay on due time as they promised.
Promissory notes due in one year or less are current assets, whereas notes due in more than one year are long-term assets.
Other receivables are nontrade receivables that are usually listed in separate categories on the balance sheet. Every type of other receivables has different risk factors and liquidity characteristics, including staff advance, prepaid expenses, prepaid insurance, etc, and sometimes deposit.
What is the normal balance of account receivable?
Account receivable normally balance is debit, which is similar to other assets. It could go to credit normally balance if the payment from the customer is higher than what they own to the company. In this case, it is not considered an asset. Yet, it is considered payable in the liabilities.
|Account titles||Type of account||Mapping||Normal Balance|
|Property, plant, and equipment||Assets||Balance sheet||Debit|
|Accounts receivables||Assets||Balance sheet||Debit|
|Prepaid assets||Assets||Balance sheet||Debit|
|Cash and bank balance||Assets||Balance sheet||Debit|
|Share capital||Equity||Balance sheet||Credit|
|Accounts payable||Liability||Balance sheet||Credit|
|Loan payable||Liability||Balance sheet||Credit|
|Deferred tax liability||Liability||Balance sheet||Credit|
|Bonds payable||Liability||Balance sheet||Credit|
|Cost of sales||Expenses||Income statement||Debit|
|Finance expense||Expenses||Income statement||Debit|
|Administrative expenses||Expenses||Income statement||Debit|
|Selling and distribution expenses||Expenses||Income statement||Debit|