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Chapter 2. Balance Sheet: Current Assets > Getting a Current Asset Accounts Rec...

Getting a Current Asset Accounts Receivable Balance

Credit sales are a fact of business life. If yours is a retail business with any appreciable degree of competition, you almost certainly must accept credit cards as a method of payment or risk losing business to your competitors. If your principal customers are themselves businesses, you must contend with the fact that they, like you, want to use their assets most efficiently. One way to do so is to use a good credit history to acquire more goods on credit.

The result is that you must temporarily show these credit sales as funds that you expect to receive at some point in the future. The matching principal, which was discussed in Chapter 1, applies here: it requires that you match revenues to the expenses required to produce the revenues in the same time period. Because you have not yet received payment for these credit sales in cash, it's necessary to record them as funds to be received: thus the term accounts receivable. Figure 2.5 shows an example of Accounts Receivable for Bell Books.


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