What is Accounts Receivable?

Definition: Classified as a current asset, which is entered as a debit on the balance sheet.

An asset resulting from selling goods or services on credit (on account). An invoice with terms (net 30 days) indicates that a sale was made on account and not a cash sale. Thus, meaning that the purchaser owes money to your company.

When the money is received, cash is increased and accounts receivable is decreased. On occasion, accounts receivable can be classified as a long term asset if payment is to be received more than a year after purchase.

Accounts Payable is identical, except that you are the one who is making a purchase on credit, and you owe cash in the future.