Is accounts receivable considered an asset?
When companies extend credit to customers for goods and services that theyve provided, the amount the company is owed is referred to as accounts receivable. Find out everything you need to know about accounts receivable with our comprehensive guide. First up, lets look at the definition of assets. Essentially, a couple of different things count as assets, including:  Things of value or resources owned by the company  Prepaid expenses that havent expired or been used up yet  Costs with a measurable future value  Examples of assets include inventory, vehicles, cash, long-term investments, real estate and so on. Yes, accounts receivable is an asset, because its defined as money owed to a company by a customer. Lets take the example of a utilities company that bills its customers after providing them with electricity. The amount owed by the customer to the utilities company is recorded as an accounts receivable on the balance sheet, making it an asset. Its relatively straightforward. Put simply, accounts receivable counts as an asset because the amount owed to the company will be converted to cash later. More receivables = more cash, which leads to the growth of the business, over time. Whether or not accounts receivable counts as revenue is a tricky subject and tends to be determined by the method of accounting that your business uses. Under the cash basis of accounting, only transactions resulting in cash being paid in or out are revenue. As a result, accounts receivable wouldnt be considered revenue. However, under the accrual basis of accounting, revenue is understood to be cash that comes into your business after a sale has occurred, which makes accounts receivable revenue. Accounts receivable are an asset, not a liability. In short, liabilities are something that you owe somebody else, while assets are things that you own. Equity is the difference between the two, so once again, accounts receivable is not considered to be equity. When youre examining your companys books, remember to always include accounts receivable as an asset, or your calculations may end up off-piste. Accounts receivable can be considered a current asset because its usually converted to cash within one year. When a receivable is converted into cash after more than one year, instead of being recorded as a current asset, its recorded as a long-term asset. Its also important to remember that sometimes, due to a variety of factors, an accounts receivable isnt ever collected. In this case, the account will be offset by the provision for doubtful debts. Tangible assets are assets that have a clear value which can be easily measured. Stocks, cash, vehicles, machinery, buildings, and so on are all classified as tangible assets. Surprisingly, accounts receivable is considered to be a tangible asset. When you invoice a customer, the payment terms and the amount are set, and the customer has legally committed to paying the bill. As a result, accounts receivable is a tangible asset. Bottom line: accounts receivable are tangible, current assets that may be counted as revenue, depending on the accounting method used by your firm. We can help  GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.