Is Accounts Receivable Classified Under Liabilities And Equity?

Here we will study about “Is Accounts Receivable Classified Under Liabilities And Equity”.

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The answer to this Accounting Question is that Accounts Receivable is neither classified under Liabilities nor Equity but, in fact, Accounts Receivable is a Current Asset on Balance Sheet which is convertible into Cash very quickly.

Accounts Receivable is the amount of debts due from customers against the goods or services sold on credit / account basis. For Example, if the entrepreneur sold goods worth Rs. 50000 to Mr. A on Credit Basis and Mr. A agrees to make payment for the goods after 30 days, then it is a Business Transaction and it is related to Sale of goods on credit basis. The Customer, Mr. A is Accounts Receivable for the entrepreneur while Sales is the revenue which the entrepreneur will earn when the customer, Mr. A makes payment on due date. When the customer, Mr. A makes the payment on the due date, then the entrepreneur closed the Accounts Receivable Account and records the sales in its Income Statement or Profit And Loss Account.

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Accounts Receivable VS Liabilities And Equity

As far as we are concerned with Liabilities these are the debts due payable by the business to outsiders. If we consider the above example, here the entrepreneur will receive the amount but not liable to pay. In fact, the liability is on the customer who has to pay for the purchased goods wroth Rs. 500000 on Credit Basis.

While Equity is the claim of outsider and insiders of the business to the resources (Assets) of the business. It includes rights of Outsiders and rights of owners. Accounts Receivable is a resource (Current Asset) from which the entrepreneur will get the probable benefit in the form Cash received from customer. So, we can not classified Accounts Receivable under Equity.

From the above study, we can say Accounts Receivable / Debtor is neither Classified Under Liabilities Nor Equity in Accounting.