In the chart of accounts, what type of account is accounts receivable?

Introduction / Context:
Classifying accounts correctly is a basic yet crucial skill in accounting. Accounts receivable is a standard account that appears in almost every set of financial statements. Exam questions often ask which category it belongs to in the chart of accounts, because this confirms understanding of how credit sales and customer balances are reflected in the balance sheet. Recognising accounts receivable as an asset is fundamental to preparing and reading financial statements.

Given Data / Assumptions:

• Accounts receivable arises when a business sells goods or services on credit.
• Customers owe money to the business and are expected to pay in the near future.
• The business has a legal right to collect these amounts.
• The chart of accounts includes categories such as assets, liabilities, expenses and equity.

Concept / Approach:
An asset is a resource controlled by the entity as a result of past events, from which future economic benefits are expected to flow. Accounts receivable meets this definition because it represents claims against customers that will be settled by cash receipts. It is therefore classified as a current asset. It is not a liability, because it does not involve an obligation to pay others, and it is not an expense, which would appear in the income statement. The correct answer is simply that accounts receivable is an asset account in the chart of accounts.

Step-by-Step Solution:
Step 1: Identify the nature of accounts receivable as amounts due from customers for past sales. Step 2: Compare this with the definition of an asset as a resource expected to bring future benefits, usually in the form of cash. Step 3: Recognise that when customers pay their receivables, the business receives cash, confirming the future benefit. Step 4: Place accounts receivable under the asset category in the chart of accounts and normally under current assets in the balance sheet. Step 5: Ensure that accounts receivable is not confused with liabilities, expenses or equity accounts, which have different roles.

Verification / Alternative check:
Consider how a sale on credit is recorded. The business debits accounts receivable and credits sales revenue. The debit increases an asset account, reflecting a claim on the customer. Later, when cash is collected, the business debits cash and credits accounts receivable, moving value from one asset account to another. At no point is accounts receivable treated as a liability or an expense. This flow of entries confirms that accounts receivable is correctly classified as an asset in the chart of accounts.

Why Other Options Are Wrong:
Option B, liability, is wrong because liabilities represent obligations owed by the business to others, such as accounts payable, whereas accounts receivable represents amounts owed to the business. Option C, expense, is incorrect because expenses represent costs that reduce profit; they are not outstanding amounts due from customers. Option D, equity, refers to the residual interest of owners after liabilities are deducted from assets, not to specific claims against customers. Option E, contra revenue, is used for accounts like sales returns and allowances, which reduce revenue, but accounts receivable increases the asset base and does not reduce revenue directly.

Common Pitfalls:
A common pitfall is confusing accounts receivable with accounts payable due to similar names, leading to misclassification in exam answers. Another mistake is thinking that because receivables have not yet produced cash, they are less real than other assets and perhaps should be treated differently. In reality, receivables are central to working capital management and must be recognised as assets. Remembering that accounts receivable is a current asset representing customer debts helps maintain clarity when working with the chart of accounts and preparing financial statements.

Final Answer:
Asset