Any small business owner who isn’t a finance professional can find bookkeeping overwhelming at times. It requires familiarity with new terms and mistakes are common and costly. Luckily, we’ve got your back.
In previous articles, we covered ACH and EFT, accounts payable (AP), and the best fast payment methods for businesses. In this article, we’ll help you better understand how to fill out your balance sheet, and more specifically, where to list your accounts receivable (AR).
Put simply: Accounts receivable are assets as they refer to money you expect to receive in the near future.
To explain why, let’s quickly define AR, assets, and liabilities.
First things first, what are accounts receivable?
Any payment you expect to receive in the coming months for goods or services provided by your business is considered AR.
This includes, for example, net-terms deals that will only be paid next month plus any other open or past due invoices you issued.
So, what are assets?
Generally speaking, assets are anything with a monetary value that a business has. This includes cash, inventory, equipment, vehicles, and completed deals that haven’t been paid for yet by your customers (in other words, AR).
What are liabilities, then?
Liabilities are any debts a business has. These can include money, labor, or goods that have yet to be provided. All liabilities must be included alongside assets in the balance sheet to provide a clear picture of the business’s financial situation.
What about accounts payable?
AP includes all open bills that need to be paid by a business in the short term for goods, services, or utilities. In other words, they are a type of short-term debt. This means accounts payable are listed as liabilities on your balance sheet.
One last question: What’s a balance sheet?
A balance sheet is a financial statement that lists a business’s assets and liabilities to provide a quick view of its finances and net worth. You typically need to fill out your balance sheet once every quarter.
Learn more about assets and liabilities
Assets and liabilities are two basic indicators of a business’s financial health that every business owner should know. To get a better understanding of these terms and what they mean for your business, check out our walkthrough of assets and liabilities.
Oh, and if you’re looking for a tool to easily manage your AR assets and AP liabilities, consider signing up for Melio. It’s free, only takes a few minutes to set up, and can save you hours in bookkeeping tasks every week.