Accounts Receivable Definition – Example & Accounting Treatment

accounts receivable definition

Accounts Receivable Definition with Example

Accounts Receivable Definition – “Money owed to a company for goods or services sold”.

It is also known as Debtors. In simple words, accounts receivable refers to the amount of money that the customers owes to the company for the goods and services sold on credit. Most of the times, the credit sale is made in order to attract the customers to shop more or to shop even more when there is no cash with them.

However such type of schemes are quite common in case of B2B businesses. But there is also selling on credit basis in case of B2C customer. In case of B2B, most of the transactions are done on credit basis. However in B2C, departmental stores goes for such schemes.

It is a short term debt that the customers owes to the company. Within a month or few months they have to repay the debts back. The time period to repay the debt may vary as decided by the company and customer.

Example of Accounts Receivable

To understand the accounts receivable definition more clearly, let’s discuss an example.

Ram is a customer who buys Rs. 10,000 of goods from ABC Company on credit. The Journal entry for this trasaction will be –

Accounts Receivable A/c Dr.                  ………………………………………………………………………………10,000

To Sales A/c …………………………………………………………………………………………………………………………………10,000

(Being Ram buys Rs 10,000 goods on credit from ABC company)

Related Financial Terms of Accounts Receivable

Treatment of Accounts Receivable in Balance Sheet

Well, accounts receivables comes under the category of current assets. These can be easily converted into cash within 1 year. Hence Accounts Receivables are shown in Assets side of Balance Sheet under Current Assets head.

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