Accounts Receivable

What are Accounts Receivable?

Accounts Receivable (AR) refers to the outstanding invoices or money owed to a company by its customers for products or services that have been delivered or used but not yet paid for. It is considered a current asset on the balance sheet, as it represents a legal obligation for the customer to pay their debt.

Short Description: Money owed by customers for goods or services that have been delivered but not yet paid for.

• Importance: AR significantly impacts a company's cash flow and liquidity, as they represent incoming cash.
• Management: Effective AR management involves establishing credit policies, setting collection terms, and actively pursuing overdue invoices.
• Measurement: Metrics like Days Sales Outstanding (DSO) are used to evaluate how efficiently a company collects receivables.

Accounts Receivable is crucial for maintaining healthy financial operations, ensuring that there is sufficient cash flow for ongoing business activities and growth.