What is Accounts Receivable
Definition of Accounts receivable
Accounts receivable (AR) is the balance of money due to a business for goods or services delivered or used but not yet paid for by customers. Accounts receivable is listed on the balance sheet as a current asset. Any amount of money owed by customers for purchases made on credit is Accounts Receivable.
Every business will set a due date for customer payments and payments terms for their product or service. Managing accounts receivable is essential to healthy working capital and cash flows and can have a serious impact in the short term if outstanding invoices are not settled timeously. Most businesses work on the principal of 30 days for a customer to pay.
Frequently asked questions
What is an example of an account receivable
Accounts receivable is the money customers owe a company for goods or services they received but haven't paid for yet. For example, when customers purchase products on credit, the amount owed gets added to the accounts receivable. An obligation is created through a business transaction.
How to record accounts receivable
When you record an invoice, you should debit the accounts receivable for the amount owed by the customer. Then, credit the sales account for the same amount. You also need to post the cost of goods sold journal entry to update your inventory.
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