Accounts Receivable on Balance Sheet (Free Sample for Contractors)
Updated: May 18
What makes a fruitful construction company different from a poor one is how successful it is at managing its accounts receivable.
It is important to send out invoices and collect money quickly, but it is also important to know where accounts receivable are shown on your balance sheet. In this blog, we'll discuss how accounts receivable affect your balance sheet and how you can improve your AR processes to maximize your cash flow.
Table of Content:
Accounts Receivable on Balance Sheet: What is A Balance Sheet Anyway?
A Solid Credit Policy & Payment Terms Help Avoid "Fake Revenue"
Accounts Receivable on Balance Sheet: What is A Balance Sheet Anyway?
Accounts receivable are valued and reported on the balance sheet. But what is a balance sheet anyway?
A balance sheet is a financial statement that shows how well your business is doing financially at a certain time. It shows your assets, liabilities, and equity. Assets are what your company owns; liabilities are what it owes; and equity is what is left over for the owners. Knowing this is essential for understanding where accounts receivable are recorded.
Accounts Receivable as a Current Asset
Accounts receivable, or AR, represents your outstanding (unpaid) customer's invoices. To put it simply, AR represents the amount of money your customer owes you after you complete a project. Knowing that it's the amount of money that you will soon receive in the future, the question that makes sense here is: "Is accounts receivable an asset?"
The answer is that it is the money your company expects to receive soon, so it is listed as a current asset on your balance sheet. But while it may seem like having a lot of AR is a good thing, it is essential to keep in mind that it also presents some risks.
Here's an example of how accounts receivable might appear on a construction balance sheet:
