Skip to main content

Accounts receivable is the money owed to a business for the sale of goods or services already delivered. It is a type of short-term credit that a company extends to a customer by creating an invoice or bill to be paid at a later date. Accounts receivable are considered an asset and are listed as such on a business’s balance sheet. 

What does Accounts Receivable stand for?

In accounting, the term “receivables” means that a business has made a sale, but hasn’t yet received the proceeds from that sale. Accounts receivable, abbreviated as AR, are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not yet paid for. These are generally in the form of invoices raised by a business and delivered to the customer for payment. Accounts receivable are shown in a balance sheet as an asset.   

When is Accounts Receivable Created?

Accounts receivable are created any time money is owed to a firm for services rendered or products provided that have not yet been paid. This can be from a sale to a customer on store credit, or a subscription or installment payment that is due after goods or services have been received. 

Where is Accounts Receivable Recorded?

The balance sheet records account receivable information for a company, and since they represent funds owed to the company they are booked as an asset. 

What are the Benefits of Accounts Receivable?

Accounts receivable is an important aspect of a business’s 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. Analysts often evaluate accounts receivable in the context of turnover, which measures the number of times a company has collected on its accounts receivable balance during an accounting period. 

What are The Types of Accounts Receivable?

There are three types of account receivables that a company will have. These include accounts receivable, notes receivable, and other receivables. Accounts receivable usually occur because of credit sales and arise as a result of buying goods or services on credit. Notes receivable are normally in the form of a letter and this type of loan has a bill of between 2 to 3 months. Other receivables include interest receivables, salary receivables, employee advances, and tax refunds.

Where Can I Find a Company’s Accounts Receivable?

Accounts receivable are found on a firm’s balance sheet, and since they represent funds owed to the company they are booked as an asset. 

What Happens If a Customer Doesn’t Pay an Account Receivable?

When a customer does not pay an account receivable and it becomes clear that the account receivable won’t get paid by the customer, it has to be written off as a bad debt expense or one-time charge. 

How Do Receivables Differ From Accounts Payable? 

Accounts receivable and accounts payable differ in that they are on opposite sides of the balance sheet. Accounts receivable is money that is owed to a company by a customer and is considered an asset. Accounts payable, on the other hand, is money your company is obligated to pay and is considered a liability. 

Is Accounts Receivable the same as Accounts Payable?

Accounts receivable are not the same thing as accounts payable. As mentioned before, accounts receivable are credits made to customers for goods and services and are considered assets, while accounts payable are debts incurred by a company and are considered a liability.