The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market

by Pat Dorsey

Let’s say that Colgate sells a few cases of toothpaste to Joe’s Corner Store for $1,000 on February 15 but gives Joe 60 days to pay because he’s a regular customer and has a good track record of paying his bills on time. March 31 rolls around, Joe hasn’t paid yet, and Colgate closes its books for the quarter. Colgate shows $1,000 in sales on its income statement because it shipped the toothpaste to Joe—according to the income statement, the sale is complete, regardless of whether Colgate has received payment. But because Joe hasn’t ponied up the grand yet, Colgate will post an entry on its balance sheet to show that Joe owes Colgate $1,000. (The entry goes into the accounts receivable line—more on this later in the chapter.)