What is Accounts Receivable (AR)?
Accounts Receivable (AR) represents money owed to a business by its customers for goods or services delivered on credit. It appears as a current asset on the balance sheet, reflecting expected cash inflows.
How Accounts Receivable Works
Invoice Issued: The business provides goods or services and sends an invoice.
Recording: The invoice is recorded as AR in accounting records.
Collection: The customer pays within the agreed credit period.
Example
A consultancy firm invoices a client $25,000 for a completed project, due in 60 days. This is recorded as accounts receivable until the client pays.
Benefits
Improves cash flow forecasting
Reduces risk of bad debts with proper follow-up
Strengthens customer relationship management