Is Account Receivable a Current Asset?
Yes, accounts receivable are considered current assets. Account receivables are outstanding balances with customers resulting from the sale of products or services that are recoverable within one year and therefore, it is classified as current assets.
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Examples of Accounts Receivables as Current Asset
Example #1
Garaner’s Company sells $1,200 of gems jewelry to a retailer on credit. The retailer has 60 days to pay the full $1200. Garaner’s Company will decrease its inventory by $1,200 and increase accounts receivable by $1,200. After 60 days, once the retailer pays the £1200, the Company will increase its cash balance by $1,200 and decrease its accounts receivableAccounts ReceivableAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year. read more by $1,200. The receivable here is a current asset as they made a realization in less than 1 year.
Example #2
Abc limited sold 100 boxes of cartilage to Mr. Smith and gives 60 days credit termsCredit TermsCredit Terms are the payment terms and conditions established by the lending party in exchange for the credit benefit. Examples include credit extended by suppliers to buyers of products with terms such as 3/15, net 60, which essentially implies that although the amount is due in 60 days, the customer can avail a 3% discount if they pay within 15 days.read more. As and when the seller transfers goods to Mr. Smith, he will record sales and book receivable amounts against Mr. Smith. This outstanding amount is an asset, as it will appear in the balance sheet as receivable. Further, since the amount is to be received in less than 1 year, it will be classified as a current asset.
Example #3
Fresh mango company limited sold 2 dozen boxes of mangoes to Ms. Riya. One dozen boxes were sold for cash and another for credit of 90 days. Here the seller will record cash sales for one dozen boxes, and another would be raised as receivable. The receivable would be shown as a current asset as the realization would happen in less than one year.
Example #4
Company XYZ sells $100 million of bearing parts to an auto manufacturer and gives that customer 60 days. Once Company XYZ receives the order, it will decrease its inventory by $100 million and increase its accounts receivable by $1 million. When 60 days have passed, and payment is received, it will increase cash by $100 million and reduce its accounts receivable by $100 million.
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