What's the difference between trade receivable and account receivable in accounting?
Trade receivables and accounts receivables are both terms used in accounting to refer to amounts owed to a company by its customers. However, there are some key differences between the two:
Trade receivable:
- Trade receivables specifically refer to amounts owed by customers as a result of the sale of goods or services on credit terms.
- Trade receivables are typically expected to be collected within a relatively short period, such as 30, 60, or 90 days.
- Trade receivables are included in the current assets section of the balance sheet.
- Trade receivables are usually considered a more liquid asset than other types of receivables like loans or advances.
Accounts receivable:
- Accounts receivable is a broader category that includes all amounts owed to a company by its customers, regardless of whether the amounts are related to the sale of goods or services.
- Accounts receivable can include trade receivables, as well as other types of receivables like loans, advances, or other forms of credit extended to customers.
- Accounts receivable may include amounts that are expected to be collected over a longer period, such as several months or even years.
- Accounts receivable is also included in the current assets section of the balance sheet.
In summary, trade receivables specifically refer to amounts owed as a result of the sale of goods or services on credit terms, while accounts receivables encompass all amounts owed by customers to a company, regardless of the source of the debt.