Accounts Receivable

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Accounts receivable is an accounting term that means value owed to a business by its customers or whoever else owes it money. Accounts receivable are listed as credits on a company’s balance sheet. In proper “double entry” accounting, any increase or decrease in accounts receivable should be offset for an equal and opposite entry in another category, such as cash or inventory.

For example, if a store sells a $5,000 item on credit, it should enter a $5,000 credit on its balance sheet as an account receivable and a $5,000 debit on its inventory. since that inventory item has now been sold.

In accrual basis accounting, which measures a company’s income based on expected cashflows rather than actual cash on hand, accounts receivable represent income that must be included for the company’s income tax and valuation purposes.