Ministry of Higher and Secondary Special Education of the Republic of Uzbekistan Tashkent State University of Economics

Is Accounts Receivable an Asset or a Liability?

Accounts receivable are classified as an asset because they are outstanding payments due in the future and provide value to your company. Accounts receivable are recorded in the current asset section of the balance sheet. If the business has to wait more than one year to convert AR to cash, it is considered a long-term asset.

How Does Accounts Receivable Work?

Here we have explained the steps of accounts receivable process:

Step 1 Selling Goods and Services on Credit

The accounts receivable process start with selling goods or services to customers on credit.

Step 2 Sending an Invoice

Once the sale is confirmed, you need to send an invoice to your customer. An invoice is a sales document that has a list of products and services provided with their quantity and prices. Sending an invoice to your customer is telling them about the money owed for the goods and services provided by your business. The invoice can be sent to customers before or after the goods or services delivery, depending upon the sales contract. While creating an invoice, ensure that invoice has all the important information such as:

1. 
   Invoicedate
   
2. 
   Customer information such as name, billing, and shipping addresses, etc.
   
3. 
   Services and goods name, quantity with the price.
   
4. 
   Amountdue
   
5. 
   InvoiceDuedate
   
6. 
   Relevant purchase order number and information if your customer shared it with you.
   
7. 
   Yourcontactinformation
   
8. 
   Paymentterms
   
9. 
   Taxanddiscountdetails
   

Once an invoice is sent to your customers, you also need to record the invoice journal entry. While recording the invoice journal entry, you need to debit the accounts receivable account for the amount due from your customer and credit the sales account for the same amount. You also need to post the cost of goods sold journal entry to update your inventory. If you are using an accounting system such as Deskera Books, these journal entries will be automatically created upon generation of sales invoice and fulfillment.