Accounts Receivable is classified as an?

• A. Expense
• B. Asset
• C. Liability
• D. Revenue

Answer: (B)

Accounts receivable is the amount customers owe the business from sales made on credit. It represents a future cash inflow that the company expects to collect and is something the business controls as a result of past transactions, so it is classified as an asset on the balance sheet. Often it’s shown as a current asset because the expectation is to collect within a year or the operating cycle. It isn’t a liability, since the company isn’t obligated to pay someone else on this item. It isn’t revenue either—revenue is the income recognized from delivering goods or services, while accounts receivable is the asset that arises from making a credit sale. It also isn’t an expense. Remember that when customers pay, accounts receivable decreases and cash increases; when a sale is made on credit, accounts receivable increases. If you later adjust for uncollectible accounts, you’d reduce the asset by the allowance, presenting net accounts receivable.