Which of the following is true about accounts receivable?

• A. They are not assets
• B. They are current assets representing money owed to the business
• C. They are long-term liabilities
• D. They are revenue

Answer: (B)

Accounts receivable represent money customers owe the business from credit sales, and they are classified as a current asset on the balance sheet because they are expected to be collected in the near term, typically within one year. They are not cash yet, but they do represent future cash inflows that will help the business convert sales into actual cash. They are not liabilities, which are obligations the company must pay, and they are not revenue, which is the income earned from delivering goods or services. In the accounting cycle, making a credit sale increases accounts receivable and revenue; when the customer pays, cash increases and accounts receivable decreases. If collection is expected beyond one year, they could be shown as a non-current asset, but under standard circumstances they are current assets.