Financial Accounting I

study guides for every class

that actually explain what's on your next test

Accounts receivable

from class:

Financial Accounting I

Definition

Accounts receivable represent money owed to a business by its customers for goods or services delivered but not yet paid for. They are considered a current asset on the balance sheet as they are expected to be converted into cash within one year.

5 Must Know Facts For Your Next Test

  1. Accounts receivable are recorded when a sale is made on credit.
  2. They are classified as current assets because they are generally expected to be collected within one year.
  3. Managing accounts receivable efficiently can improve a company's liquidity and cash flow.
  4. The allowance for doubtful accounts is used to estimate the portion of receivables that may not be collectible.
  5. Financial ratios such as the accounts receivable turnover ratio help assess how efficiently a company collects its receivables.

Review Questions

  • What are accounts receivable, and where are they reported on the financial statements?
  • Why is it important for companies to manage their accounts receivable efficiently?
  • How does the allowance for doubtful accounts impact the valuation of accounts receivable?
© 2024 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.
Glossary
Guides