Question

What is account receivable? And how do I know it is an account receivable? With an example, please.

Answer 1

Account receivable is an asset account, which is created when sales are made on account (i.e. receivable from the party to whom the sales are made). It refers to the amount owed to the company by another person. Account receivable will always have a debit balance and it is shown on the asset side of the balance sheet of the company.

To know account receivable - It will show a debit balance for sales made on account.

Example: XYZ company sold goods for $ 1,000 to ABC company on account.

In the above example, XYZ company is the seller and ABC company is the buyer, to whom the sales are made on account.

Now, in the books of XYZ company, ABC company's account would be shown under account receivable with $ 1,000.