Accounts receivable refers to the money that is owed from customers (debtors). This also represents the total of outstanding invoices.
Accounts receivables are assets
We recognize accounts receivable under accrual accounting because there could be delays between the date a company “earns” the revenue and the date a company receives cash from the customer.
Qs: Can you explain why an accounts receivable is an asset? Think about the criteria for an asset that we discussed in the first module (refer back to your notes if needed)
1.The AR is controlled by the company
2.Results from a past event – the company delivered a service or sold a good
3.Has future economic benefits – in other words, the company will receive cash from the customer