Accounts Recievable

Definition

Accounts receivable (AR) is a term used to describe money owed to a business by its customers. It is a current asset on the balance sheet and totals the amount of money a company is expecting to receive from its customers in the near future.

Example

For example, a company may sell goods or services to a customer on credit. The customer will then be billed for the goods or services and will be expected to pay the amount due within a certain period of time. The amount due is recorded as an accounts receivable on the company's balance sheet. The company will then wait for the customer to pay the amount due. Once the customer pays the amount due, the accounts receivable is removed from the balance sheet and the company will record the payment as revenue.

Why it Matters

Accounts receivable is an important part of a company's financial health. It is important for companies to manage their accounts receivable in order to ensure that they are collecting payments from their customers in a timely manner. If a company is not able to collect payments from its customers in a timely manner, it can lead to cash flow problems and can even lead to bankruptcy.

Accounts receivable is also important for companies to manage in order to ensure that they are not extending too much credit to their customers. If a company is extending too much credit to its customers, it can lead to bad debt and can negatively impact the company's financial health.

In conclusion, accounts receivable is an important part of a company's financial health and it is important for companies to manage their accounts receivable in order to ensure that they are collecting payments from their customers in a timely manner and not extending too much credit to their customers.