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    What Is Accounts Receivable

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    Darlene Sarcino
    Accounts receivable (AR) refers to money owed to a company by customers who have purchased goods or services on credit but not yet paid for them. AR is recorded as a current asset on the balance sheet. It represents the outstanding invoices a company is owed and is a line of credit extended to customers who are expected to pay within a short time period, usually a year or less. Accounts receivable provide short-term financing to customers and allow companies to make sales before receiving payment.

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    What Is Accounts Receivable

    Uploaded by

    Darlene Sarcino
    51 views2 pages
    Accounts receivable (AR) refers to money owed to a company by customers who have purchased goods or services on credit but not yet paid for them. AR is recorded as a current asset on the balance sheet. It represents the outstanding invoices a company is owed and is a line of credit extended to customers who are expected to pay within a short time period, usually a year or less. Accounts receivable provide short-term financing to customers and allow companies to make sales before receiving payment.

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    Accounts receivable (AR) refers to money owed to a company by customers who have purchased goods or services on credit but not yet paid for them. AR is recorded as a current asset on the balance sheet. It represents the outstanding invoices a company is owed and is a line of credit extended to customers who are expected to pay within a short time period, usually a year or less. Accounts receivable provide short-term financing to customers and allow companies to make sales before receiving payment.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    51 views2 pages

    What Is Accounts Receivable

    Uploaded by

    Darlene Sarcino
    Accounts receivable (AR) refers to money owed to a company by customers who have purchased goods or services on credit but not yet paid for them. AR is recorded as a current asset on the balance sheet. It represents the outstanding invoices a company is owed and is a line of credit extended to customers who are expected to pay within a short time period, usually a year or less. Accounts receivable provide short-term financing to customers and allow companies to make sales before receiving payment.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    What Is Accounts Receivable (AR)?

    Accounts receivable (AR) is the balance of money due to a firm for goods or
    services delivered or used but not yet paid for by customers. Accounts
    receivables are listed on the balance sheet as a current asset. AR is any amount
    of money owed by customers for purchases made on credit.

    Understanding Accounts Receivable (AR)


    Accounts receivable refers to the outstanding invoices a company has or the
    money clients owe the company. The phrase refers to accounts a business has
    the right to receive because it has delivered a product or service. Accounts
    receivable, or receivables represent a line of credit extended by a company and
    normally have terms that require payments due within a relatively short time
    period. It typically ranges from a few days to a fiscal or calendar year.

    Companies record accounts receivable as assets on their balance sheets since


    there is a legal obligation for the customer to pay the debt. Furthermore,
    accounts receivable are current assets, meaning the account balance is due from
    the debtor in one year or less. If a company has receivables, this means it has
    made a sale on credit but has yet to collect the money from the purchaser.
    Essentially, the company has accepted a short-term IOU from its client.

    Accounts Receivables vs. Accounts Payable


    When a company owes debts to its suppliers or other parties, these are accounts
    payable. Accounts payable are the opposite of accounts receivable. To illustrate,
    imagine Company A cleans Company B's carpets and sends a bill for the
    services. Company B owes them money, so it records the invoice in its accounts
    payable column. Company A is waiting to receive the money, so it records the bill
    in its accounts receivable column.

    Benefits of Accounts Receivable


    Accounts receivable is an important aspect of a businesses' fundamental
    analysis. Accounts receivable is a current asset so it measures a company's
    liquidity or ability to cover short-term obligations without additional cash flows. 

    Fundamental analysts often evaluate accounts receivable in the context of


    turnover, also known as accounts receivable turnover ratio, which measures the
    number of times a company has collected on its accounts receivable balance
    during an accounting period. Further analysis would include days sales
    outstanding analysis, which measures the average collection period for a firm's
    receivables balance over a specified period.
    Example of Accounts Receivable
    An example of accounts receivable includes an electric company that bills its
    clients after the clients received the electricity. The electric company records an
    account receivable for unpaid invoices as it waits for its customers to pay their
    bills. 

    Most companies operate by allowing a portion of their sales to be on credit.


    Sometimes, businesses offer this credit to frequent or special customers that
    receive periodic invoices. The practice allows customers to avoid the hassle of
    physically making payments as each transaction occurs. In other cases,
    businesses routinely offer all of their clients the ability to pay after receiving the
    service.

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