Final answer:
Accrued receivables occur when revenue is earned before the cash is received, and they are recorded as current assets on the balance sheet.
Step-by-step explanation:
Accrued receivables involve situations when the revenue is earned in a period before the cash receipt. This means that the goods or services have been delivered, and the company has a right to receive payment, but the actual payment has not yet been received. Accrued receivables are recorded on the balance sheet as current assets because they are expected to be converted into cash within a short period.
Under the accrual basis of accounting, revenues are recognized when they are earned, not necessarily when cash is received. This can lead to accrued receivables if a customer is invoiced and will pay at a later date. For example, a company delivers a service in March but does not receive payment until April. The revenue for the service is recognized in March, and an accrued receivable is recorded.