In accounting terms, how are receivables categorized?

Receivables are categorized as assets because they represent amounts owed to a business by its customers or other parties. When a company provides goods or services on credit, it creates a legal claim to receive payment in the future, classifying these claims as assets on the balance sheet. This is vital because assets are resources that the company owns or controls, which are expected to generate future economic benefits. Receivables are expected to be converted into cash, typically within a short period, thus playing a crucial role in a company’s liquidity and financial health. Importantly, they are part of the working capital necessary for a business to operate effectively.