What is Gross Accounts Receivable?

Gross accounts receivable is the amount of sales that a business has made on credit, and for which no payment has yet been received. The gross receivable figure is useful for estimating the amount of cash that a business is likely to generate in the near term to pay its obligations, and so is considered a prime determinant of liquidity. The figure normally includes just trade receivables; non-trade receivables are categorized separately.

There is usually a contra account, called the allowance for doubtful accounts, that offsets the balance in the gross accounts receivable line item. This allowance contains management's best estimate of the total amount of receivables that will not be paid. When the gross receivables figure is combined with this allowance account, the combined total is called net accounts receivable, which appears in the balance sheet.

When there is a large difference between the gross and net receivable balances, this indicates that a business expects to suffer significant bad debt losses. If so, a reasonable question is whether the business is granting credit to its customers without a sufficiently rigorous review process.

The gross accounts receivable concept only arises under the accrual basis of accounting. Under the alternative cash basis of accounting, receivables are not recorded.

Presentation of Gross Accounts Receivable

Gross accounts receivable is usually stated on the balance sheet net of any allowance for doubtful accounts, so that only a net accounts receivable figure is shown. When gross accounts receivable is broken out on the balance sheet, the format used is similar to the one shown in the following exhibit.

The gross receivable figure is usually classified as a current asset on the balance sheet. However, if a receivable is expected to be collected in longer than 12 months, then it is instead classified as a long-term asset on the balance sheet.