Accounts Receivable

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 is typically reported as part of the company's accounts receivable balance. Accounts receivable is the amount of money that a company is owed from customers who have purchased goods or services on credit. It is the amount of money that 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 invoiced for the goods or services and will be expected to pay the invoice within a certain period of time. The amount of money that the customer owes the company is known as accounts receivable. The company will then record the amount of money that is owed to them in their accounts receivable balance.

Why it Matters

Accounts receivable is an important part of a company's financial health. It is important for companies to keep track of their accounts receivable balance in order to ensure that they are receiving the money that they are owed in a timely manner. Accounts receivable can also be used to measure the effectiveness of a company's credit policies and to identify any potential issues with customers who are not paying their invoices on time. Additionally, accounts receivable can be used to assess the financial health of a company and to determine whether or not the company is able to meet its financial obligations.