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Is Accounts Receivable an Asset or a Liability?

By |Last Updated: August 21st, 2024|

Collecting customer payments can often be a challenging and time-consuming process for businesses. Dealing with various payment terms, managing customer credit, and reconciling payments can require substantial administrative effort. Accounts receivable serve as a critical financial function that helps simplify and streamline collection efforts. This article will explain the nature of accounts receivable, including key AR performance metrics and why AR is listed as an asset rather than a liability on the balance sheet.

Is Accounts Receivable an asset?

Accounts receivable is considered an asset, not a liability. Accounts receivable are assets that represent amounts owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.

What is Accounts Receivable

Accounts receivable (AR) represents a company’s financial claims to payments for goods supplied or services rendered on credit terms. When a company provides goods or services to its customers without immediate payment, it creates an invoice detailing the amount owed. This invoice amount contributes to the company’s accounts receivable.