Key Concepts
To encourage customers to buy from it, a business may grant credit — letting the customer receive the goods or services first and pay later. The credit period is usually 30 to 90 days.
When customers buy goods or services on credit, the amount they owe the business is called trade receivables. Trade receivables are a current asset — the business expects to collect the money within the next accounting period.
Always name the customer when recording a trade receivable — e.g. Trade receivables — Priya — never just "Trade receivables" on its own.
Receivable = money still to be received. A trade receivable is created the moment you sell on credit, and it is removed when the customer finally pays.
Treating a credit sale as cash received. When goods are sold on credit, no cash comes in yet. The business records a trade receivable (a current asset), not cash — the cash is only recorded later when the customer pays.
Leaving out the customer's name. A trade receivable must always be tied to a named customer. "Trade receivables" with no name does not show who owes the money.