What is Accounts receivable?
Accounts receivable is a current asset account that represents the amount of money that is owed to a business by its customers for goods or services that have been sold on credit.
Accounts receivable is the term used to describe any unpaid invoices or cash that a business is owed by customers. Accounts that a company is entitled to get as a result of delivering a good or service are referred to by the phrase. Receivables, are a type of line of credit that a business extends to customers. Typically, the terms of receivables stipulate that payments must be made within a reasonable amount of time. Usually, it might be anything from a few days to a whole fiscal or yearly year.
Because the consumer is legally required to pay the loan, businesses list receivable as assets on their balance sheets. They can be used as collateral to obtain a loan to help pay for immediate obligations, which is why they are regarded as a liquid asset. An AR is any outstanding balance that clients have for purchases they made with credit.
The fundamental examination of a corporation includes accounts receivable as a key component. As a current asset, accounts receivable serve as a proxy for a company’s liquidity, or the extent to which it can meet short-term obligations without raising additional capital.
The accounts receivable process usually consists of four steps:
first, deciding on credit practices for customers; second, invoicing goods sold to them; third, tracking payments received and yet to be received; and finally, recording account receivable balances by the accounts department.