What Is Accounts Receivable?
Definition, journal entries, and bad debts explained simply.
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Quick answerAccounts receivable is money owed to a business by customers for goods or services sold on credit. It is a current asset.
| Also called | Trade receivables, debtors |
|---|---|
| Normal balance | Debit |
| Opposite | Accounts payable |
Accounts receivable in plain English
When you sell on credit you do not get paid straight away. Until the customer pays, the amount they owe you is recorded as an asset.
Worked example
A business sells goods for 2,000 on credit.
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable | 2,000 | |
| Sales revenue | 2,000 |
When the customer pays, debit Cash 2,000 and credit Accounts receivable 2,000. The receivable is cleared.
Common mistakes
- Recording revenue only when cash arrives instead of when the sale is made.
- Ignoring customers who are unlikely to pay. A bad debt is an expense.
Frequently asked questions
What is the difference between accounts receivable and accounts payable?
Receivable is money customers owe you (an asset). Payable is money you owe suppliers (a liability).
What is a bad debt?
A receivable that is unlikely to be collected. It is written off as an expense.
Where does accounts receivable appear on the balance sheet?
Under current assets, usually after deducting an allowance for doubtful debts.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.