The concept of accounts receivable refers to money due from customers who purchased goods or services on credit. Which of the following best describes this concept?

• A. Liability
• B. Current asset
• C. Revenue
• D. Equity

Answer: (B)

Accounts receivable is the amount customers owe you for work or goods delivered on credit. It’s an asset because it represents future cash you expect to collect, not a current obligation you must pay or an owner claim. It’s classified as a current asset because you typically expect to convert it to cash within a short period, usually within a year or your operating cycle. When you invoice a client after completing a landscaping project, you create this asset; when the client pays, the asset is converted to cash. It isn’t a liability, since you aren’t owed money by someone you must pay, and it isn’t revenue, which is the income earned from completing the work. It also isn’t equity, which reflects owner claims after liabilities. You might adjust for potential uncollectible receivables with an allowance, which affects net receivables on the balance sheet.