Yes, accounts receivable is a material component of a company’s total current assets. A current asset is any asset that will provide an economic benefit for or within one year. To be “material” means that it has a value significant enough to be worth noting for accounting purposes. Since accounts receivable will be converted into cash within one year and has a noteworthy value, it is a material current asset. Accounts receivable are funds that a company is owed by clients who have received a good or service, but have not yet paid. For these funds to be a current asset, they must be expected to be received within a year. An example of accounts receivable is Google Ads which allows businesses to incur an advertising bill and collect the funds after the ad placements have been used by the business. The outstanding funds waiting to be collected will be included in accounts receivable.
Is Accounts Receivable a Material Component of a Company’s Total Current Assets? FAQs
Yes, accounts receivable is a material component of a company’s total current assets and form part of the liquidity position of the business.
A current asset is any asset that will provide an economic benefit for or within one year.
To be “material” means that it has a value significant enough to be worth noting for accounting purposes.
Since accounts receivable will be converted into cash within one year and has a noteworthy value, it is a material current asset.
Accounts receivable typically account for anywhere from 10-30% of total current assets depending on the size and industry of the organization.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
