Which best describes accounts receivable?

• A. Money due from customers who have purchased goods or services on credit
• B. Money owed to suppliers
• C. Cash on hand
• D. Loans receivable from customers

Answer: (A)

Accounts receivable are money a business expects to collect from customers who were billed for goods or services on credit. It shows up as a current asset because you expect to convert it to cash within a short time. For a landscaping contractor, this happens when you complete a job and bill the client on credit; until they pay, that amount sits as accounts receivable. This is different from money owed to suppliers (which is accounts payable), from cash on hand (actual cash you have available), or from loans receivable from customers (where you’ve lent money to a customer rather than awaiting payment for a recent sale). In practice, you also account for potential uncollectible amounts with an allowance for doubtful accounts and monitor aging to manage collections.