Accounts Receivable

Accounts receivable (AR) represent sales that a company has made on credit; the product has been sold and delivered, but the company has not yet received the cash for the sale.

Source: Used with permission. Microsoft 2005 Annual Report.

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4. The Lemonade Stand
Exercise
Q1:

  • Recall that during 2005, the lemonade stand recorded revenues of $100 on its income statement.

  • We previously assumed that the company collected the entire revenue amount in cash.

  • Now assume that the company collected $50 in cash and $50 on credit.

  • Based on the new information, create the appropriate T-account for the transaction.

4. The Lemonade Stand
Solution
1: It collected $50 in cash and $50 on credit:
 DebitsCredits
Cash (A)50 
AR (A)50 
Revenues (SE) 100

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