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What is Account Receivable in Finance?

In finance, an account receivable is an amount that a customer owes to a business for goods or services that have been delivered, but not yet paid for. In other words, it is a claim held by a business against a customer for payment of a debt. Account receivables are considered an asset to the business, since they represent a future source of income.

The Types of Accounts that Fall Under the Category of ‘Accounts Receivable’

There are several types of accounts that fall under the category of accounts receivable. Some common types of accounts receivable include:

  • Trade accounts receivable: This type of account receivable refers to the amounts that customers owe to a business for goods or services that have been delivered, but not yet paid for.
  • Notes receivable: A note receivable is a written promise by a customer to pay a certain amount of money to the business at a later date. This type of account receivable is typically used when a business extends credit to a customer.
  • Interest receivable: Interest receivable is the amount of interest that a business is entitled to receive from a customer for extending credit to them. This type of account receivable arises when a customer takes out a loan or buys a product on credit from the business.
  • Service revenue: Service revenue is the amount of money that a business earns from providing services to its customers. This type of account receivable is typically associated with businesses that provide services, such as consulting or repair services, rather than goods.

These are just a few examples of the types of accounts that fall under the category of accounts receivable. The specific types of accounts receivable that a business has will depend on the nature of its operations and the types of transactions it engages in with its customers.

Here are some examples of account receivable:

  • A customer buys a product from a business and receives an invoice, which is a statement of the amount due. The customer then has an account receivable, which is the amount they owe the business for the product they purchased.
  • A customer receives a service, such as a haircut or a repair, from a business and is billed for it. The customer then has an account receivable, which is the amount they owe the business for the service they received.
  • A customer buys a product on credit from a business, which means they do not have to pay for it immediately. The business extends credit to the customer, allowing them to pay for the product at a later date. The customer then has an account receivable, which is the amount they owe the business for the product they purchased on credit.

These are just a few examples of account receivable. The concept of account receivable applies to any situation in which a customer owes a business for goods or services that have been delivered, but not yet paid for.

Difference between Accounts Payable and Accounts Receivable

Accounts payable and accounts receivable are two important components of a business’s financial records. While they are similar in some ways, there are also some key differences between the two.

Accounts payable refers to the amounts that a business owes to its vendors and suppliers for goods or services that have been delivered, but not yet paid for. In other words, it is a liability for the business, since it represents a future obligation to pay money.

On the other hand, accounts receivable refers to the amounts that a customer owes to a business for goods or services that have been delivered, but not yet paid for. In this case, the account receivable is an asset to the business, since it represents a future source of income.

In summary, the main difference between accounts payable and accounts receivable is the direction of the transaction. Accounts payable involves money that a business owes to others, while accounts receivable involves money that others owe to the business.

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