What is the Difference Between Accounts Receivable and Other Current Asset?
Accounts Receivable is a current asset that is only established in the form of Income to be received from a Customer that has been Invoiced. It is the amount a company has a right to collect because it sold goods or services on credit to a customer. In general, when a customer is Invoiced for goods or services you provide them, the total Invoice amount will be shown on both the Income or Profit and Loss Statement, as well as the Balance Sheet.
If a downpayment or deposit was received for the goods or services, the total Invoice amount would still be shown on the Income Statement; however, the deposit would be applied to the Invoice and entered or deposited in the bank account in which it was actually deposited, while the remaining balance that is owing and unpaid would be entered in the Accounts Receivable account. In other words, any monies that a company is owed by a customer, is a receivable.
It is very important for a company to monitor its Accounts Receivable and to immediately follow up with any customer who has not paid as agreed as per the terms of agreement be it 15 days, 30 days, etc. There is an aging of accounts receivable report tool in software such as QuickBooks that will help to monitor each customer’s Accounts Receivable, and as a general rule, the older a Receivable gets, the less likely it will be collected in full.
While Current Assets are cash or cash equivalent, such as Accounts Receivable and Inventory, Other Current Assets are small less significant items on a balance sheet lumped together because they do not include the major current assets, and as such are not important enough to be listed separately. They are not cash or cash equivalents, and represent a limited source of liquidity for a company – for example advances paid to suppliers or employees. Notations are usually available for the breakdown of these minor assets.
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