Trade receivable

What it means

Amounts due from customers for goods or services supplied on credit in the ordinary course of business.

Example

If you sell goods on credit for RM1,500, that customer is a trade receivable until they pay.

Why it matters

Trade receivables are a current asset; managing them well protects the business's cash flow.

In practice

A trade receivable is a debit balance in the sales ledger. It is reported under current assets in the statement of financial position, usually just after inventory. It arises only from selling goods or services on credit, so it shows cash the business expects to receive.

Suppose the business sells goods on credit to a customer for RM2,500 and receives RM1,000 by the year end. The remaining RM1,500 is the trade receivable. If some debts look doubtful, an allowance for irrecoverable debts is deducted to give a prudent net figure.

Students often confuse it with a trade payable, its mirror image. A receivable is money owed to the business (an asset). A payable is money the business owes to suppliers (a liability). It also differs from other receivables, such as rent owed to the business, because a trade receivable comes specifically from ordinary credit sales.

If receivables and allowances for irrecoverable debts confuse you, one of our teachers can work through them with you using exam-style figures. Book a trial class.

Related terms

• Trade payable
• Current asset
• Irrecoverable debt
• Bad debt recovered
• Control account
• Credit sale
• Discount allowed
• Dishonoured cheque
• Invoice
• Provision for doubtful debts
• Realisation concept
• Sales ledger

Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 3.4 Control accounts (page 13); sub-topic 4.4 Irrecoverable debts and allowance for irrecoverable debts (page 15).

Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.