UNDERSTANDING ACCOUNTING TALK 21 Revenues vs Cash, Accounts Receivable & Inventory

In a majority of enterprises (whether large corporations or small businesses), the proceeds from Sales are usually received partially in Cash. The balance comes in the form of a promise to pay in the near future, usually within 30 to 90 days. This balance is booked as Accounts Receivable.

In a trading, merchandising or manufacturing firm, Sales come from goods being sold. This results in a decrease in Inventory. The decrease in Inventory is equal to the value of the goods or products when these were bought (for future sales, in the case of a trading or merchandising firm) or their total cost (raw materials + cost of labor + allocated general & administrative expenses, transport, etc) when they were produced (in the case of a manufacturing firm).