In financial accounting, what is meant by Accounts Receivable (trade receivables)?

Introduction / Context:
Accounts Receivable, often called trade receivables, is one of the most important current asset accounts on a company's balance sheet. It arises whenever a business sells goods or services on credit and expects payment at a later date. This question checks whether you can clearly define Accounts Receivable in simple, practical terms and distinguish it from cash, loans, and equity.

Given Data / Assumptions:

• The business sells goods or services to customers, sometimes on credit instead of immediate cash.
• Delivery of goods or completion of services has already taken place.
• The customer has an obligation to pay the business in the future.
• We are not dealing with loans taken by the business or capital invested by owners.

Concept / Approach:
In accrual accounting, revenue is recognised when it is earned, not only when cash is received. When a credit sale is made, the business records revenue and simultaneously records an asset called Accounts Receivable. This represents the legal right to receive cash from customers in the future. As customers pay their dues, the Accounts Receivable balance is reduced and cash or bank balance increases. Therefore, Accounts Receivable is best described as amounts owed by customers to the business for past sales made on credit.

Step-by-Step Solution:
Step 1: Link Accounts Receivable with sales on credit where the customer has received goods or services but has not yet paid. Step 2: Recognise that this amount is a current asset because it will be converted into cash within a short period, typically the normal credit period. Step 3: Separate this concept from cash, which is already received and available for use. Step 4: Distinguish it from bank loans, which are obligations the business must repay, and from owner's capital, which represents equity, not customer dues. Step 5: Choose the option that defines Accounts Receivable as amounts owed by customers for credit sales that have already taken place.

Verification / Alternative check:
Consider a simple example. A company sells goods worth Rs 1,00,000 on 30 days credit to a customer. On the date of sale, the company records: Debit Accounts Receivable 1,00,000 Credit Sales 1,00,000 This entry shows that the firm has earned revenue and now has the right to collect Rs 1,00,000 from the customer. When the customer later pays, the company debits Cash or Bank and credits Accounts Receivable, reducing the receivable balance. This practical flow confirms the definition.

Why Other Options Are Wrong:
Cash kept in hand is cash, not receivable; it is already available and not owed by anyone. Long term loans taken from banks are liabilities, not assets, because the business must repay them. Capital contributed by owners is equity and represents the residual interest in assets after liabilities, not customer dues.

Common Pitfalls:
Learners sometimes confuse Accounts Receivable with cash, thinking that a sale is only recognised when money comes in. Others mix up receivables and payables, forgetting that receivables refer to amounts owed to the business, while payables are amounts the business owes suppliers. Remember the simple rule: Receivable equals the right to receive money from customers; Payable equals the duty to pay money to suppliers.

Final Answer:
Accounts Receivable is best described as amounts owed by customers to the business for credit sales of goods or services that have already been delivered.