Accounts receivable

Accounts receivable records an unconditional customer payment right. It is separate from revenue, which concerns the company's activities, and cash, which changes when the customer pays.

Identify the right before using the invoice

In an ordinary credit sale, qualifying performance creates revenue and a receivable before collection. But a receivable can also arise before service: an unconditional payment becomes due, and a contract liability records the service still owed.

An invoice does not determine the classification by itself. If a right for transferred goods or services still depends on further performance, it is a contract asset. If only the payment date remains, the right is unconditional even if the company has not yet sent an invoice. ASC 606-10-45-4 supplies that distinction.

Read the rollforward before assigning a cash effect

For the following credit-sales example, assume every revenue amount creates an unconditional receivable and every customer collection settles one. There are no advances, contract assets, write-offs, returns, or other changes. Under these limited facts:

Opening Accounts Receivable + credit revenue − customer collections
= ending Accounts Receivable

Northstar begins with $8,000, recognizes $15,000 credit revenue, and ends with $10,000:

$8,000 + $15,000 − collections = $10,000
Collections = $13,000

The $2,000 balance increase explains why collections are $2,000 below recognized revenue. In an indirect operating cash-flow reconciliation, that increase is a negative adjustment to net income under the bounded facts.

Gross activity matters

The same ending balance could result from very different credit sales, collections, returns, write-offs, acquisitions, or foreign-currency effects. Analysis should inspect aging, customer concentration, subsequent collections, credit terms, disputes, and the allowance for credit losses rather than infer quality from the net balance alone.

Check an amount due before service

An unconditional customer payment is due, but the company has not provided the promised service. Is the receivable evidence that revenue has been earned?

The receivable records the payment right. The separate contract liability records the service owed; revenue follows qualifying performance. Use the payment-before-service example to see why a collections formula based only on revenue cannot cover every contract.

Boundaries

This page uses ordinary trade receivables and a stipulated collectible amount. Contract assets, notes and loans, factoring, securitization, credit losses, variable consideration, returns, related parties, and presentation net of an allowance require specific guidance. A receivable balance change is an indirect reconciliation input only after those noncash and scope effects are understood.

Source

Read ASC 210-10-45-1 for ordinary trade receivables in the general current-asset categories and ASC 210-10-45-4 for relevant exclusions. Read ASC 606-10-45-4 for the unconditional-right test and ASC 606-10-45-2 on FASB for payment due before transfer. An unconditional right does not guarantee collection; measurement and credit-loss assessment remain separate questions.