Are Accounts Receivable Assets Or Liabilities? Full SMB Guide

Key takeaways

• Recognize accounts receivable as a current asset, since it’s money customers owe you and you expect to collect it within a year.
• Record accounts payable as a liability, because it’s money your business still owes suppliers.
• List accounts receivable under current assets on your balance sheet to keep your financial picture accurate.
• Prioritize prompt invoicing and steady follow-ups to turn receivables into cash faster.

Are accounts receivable assets or liabilities?

Accounts receivable (AR) are assets. They refer to money you expect to receive in the near future for goods or services you’ve already provided.

To explain why, let’s quickly define accounts receivable, assets, and liabilities.

What are accounts receivable?

Accounts receivable is money owed to your business by customers who bought on credit. Any payment you expect to receive in the coming months for goods or services your business provided is considered AR.

This includes net-terms deals that will only be paid next month, plus any other open or past-due invoices you issued.

What are assets?

Generally speaking, assets are anything with a monetary value that a business owns.

Common assets include:

• Cash
• Inventory
• Equipment
• Vehicles
• Completed deals that haven’t been paid for yet by your customers (your AR)

What are liabilities?

Liabilities are any debts a business has. These can include money, labor, or goods that have yet to be provided.

All liabilities must be included alongside assets and liabilities in the balance sheet to provide a clear picture of the business’s financial situation.

Is accounts receivable a current asset?

Yes, accounts receivable is a current asset. A current asset is something your business expects to turn into cash within a year.

Because you expect to collect it within a year, accounts receivable sits in the current assets section of your balance sheet. If an invoice takes longer than a year to collect, it may be reclassified as a long-term asset.

Accounts receivable vs. accounts payable

Accounts payable is a liability. It’s the money your business owes suppliers for goods, services, or utilities you haven’t paid yet.

In other words, accounts payable is a type of short-term debt, so it’s listed as a liability on your balance sheet.

What is a balance sheet, and where does AR go on it?

A balance sheet is a financial statement that lists your assets and liabilities. It gives a quick view of your finances and net worth, and many businesses update it at least once a year, often each quarter.

Accounts receivable appears under current assets, since you expect to collect it within a year.

Managing accounts receivable to strengthen cash flow

Strong accounts receivable management helps you get paid faster and keep cash flowing.

Send invoices as soon as you deliver, set clear payment terms, follow up on overdue invoices, and give customers easy digital ways to pay. Melio lets you manage bills and invoices in one place, so you can track what you owe and get paid faster.

Accounts receivable FAQs