Any source that gives capital to the company is considered as an asset while the amount the company owes to others is known as a liability. Accounts receivable is an accounting term that reflects a company’s credit owned by their vendors or suppliers for goods or services they have received from the company.
In simple words when a customer purchases products or services from your company on credit, the money they owe is known as Accounts Receivable and managing it, is very crucial for every business. Any mismanagement of Accounts Receivable can lead to a bigger loss.
In this comprehensive post, we will dig deeper into all the aspects of whether Accounts Receivable An Asset or a liability. Without any further ado, let’s get into it.
What is an Accounts receivable and How it work
Are Accounts Receivable An Asset?
To answer this, let’s define Accounts receivable.
Accounts receivable (AR) represents the amount of money that a company has yet to receive from customers for the goods and services they have sold to the customers. Since many businesses operate on credit and provides goods or services to the customers on credit and that sum is registered under Accounts Receivable unless the customers make the payment later which can be converted into cash. This amount of money recorded in AR is an asset as it reflects a speculated future cash within a year.
In other words, businesses sanction a grace period to their clients for making payments later instead of their products or services. In certain instances when customers fail to make payment after a certain period it can not be translated as revenue or profit but rather added to bad debt.
Is Accounts Receivable an Asset
When it comes to answering the query Is Accounts Receivable A Asset, the answer is “Yes” Accounts receivable are recorded as an asset on your balance sheet and categorized as a current assets. Since asset means anything that offers money to the company and AR is the amount the company will be paid later and considered an asset when they get paid. Also, a company’s cash, property, and inventory is also counted as an asset to the company. It is also termed as the measurement of the efficiency of the Company’s functions.
What is the Difference between Assets or Liabilities
Cash, real estate properties, investments and pieces of machinery are considered as assets and categorized as current or noncurrent assets which rely on how instantly they can be converted into cash.
On the other hand, Bonds, loans, and accounts payable are termed as liabilities and it is also categorized as current or non-current which depends upon the due date of the payment.
If the liabilities are not cleared on time, repercussions are the company may face legal issues.
