Accounts Receivable - AR

Loading the player...

What are 'Accounts Receivable - AR'

Accounts receivable (AR) refers to money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. Receivables usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from a few days to a year.

On a public company's balance sheet, accounts receivable is often recorded as an asset because this represents a legal obligation for the customer to remit cash for its short-term debts

BREAKING DOWN 'Accounts Receivable - AR'

If a company has receivables, this means it has made a sale but has yet to collect the money from the purchaser. Most companies operate by allowing some portion of their sales to be on credit. These type of sales are usually made to frequent or special customers who are invoiced periodically, and allows them to avoid the hassle of physically making payments as each transaction occurs. In other words, this is when a customer gives a company an IOU for goods or services already received or rendered.

Accounts receivable are not limited to businesses - individuals have them as well. People get receivables from their employers in the form of a monthly or bi-weekly paycheck. They are legally owed this money for services (work) already provided.

When a company owes debts to its suppliers or other parties, these are known as accounts payable.

RELATED TERMS
  1. Average Collection Period

    The approximate amount of time that it takes for a business to ...
  2. Net Receivables

    The total money owed to a company by its customers, minus the ...
  3. Receivables

    An asset designation applicable to all debts, unsettled transactions ...
  4. Accounts Receivable Financing

    A type of asset-financing arrangement in which a company uses ...
  5. Accounts Receivable Aging

    A periodic report that categorizes a company's accounts receivable ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to ...
Related Articles
  1. Fundamental Analysis

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
  2. Professionals

    Accounts Receivable

    Accounts Receivable (A/R) is an accounting term used to refer to the money that is owed to a company by its customers.
  3. Economics

    What are Receivables?

    Receivables are debts, transactions or other obligations owed to a company by its debtors or customers.
  4. Professionals

    The Balance Sheet

    Find out how to read this financial statement, and what it says about a company.
  5. Professionals

    Financial Statement Analysis

    CFA Level 1 - Cash Vs. Accrual Accounting. Examines the differences between cash and accrual accounting. Looks at the benefits of each and how to reconcile the two methods.
  6. Economics

    What's an Allowance for Doubtful Accounts?

    The allowance for doubtful accounts represents the percentage of the accounts receivable the company expects to write-off as uncollectible.
  7. Economics

    What's Involved in Customer Service?

    Customer service is the part of a business tasked with enhancing customer satisfaction.
  8. Investing

    What's an Average Collection Period?

    Average collection period is an accounting term referring to the average number of days between a sale made on credit, and receipt of the payment. Businesses monitor this number to make sure ...
  9. Economics

    Understanding Accounts Receivable Aging

    Company managers use accounts receivable aging reports to monitor overdue accounts.
  10. Entrepreneurship

    Small Business: Speed Up Receivables To Avoid A Cash Crunch

    Waiting for customers to pay can be a losing game. Look to factoring for quicker cash.
RELATED FAQS
  1. How long are accounts receivable allowed to be outstanding?

    Learn about accounts receivable, including how long they typically remain outstanding, and how their payment or lack of payment ... Read Answer >>
  2. How should investors interpret accounts receivable information on a company's balance ...

    Analyze accounts receivable information on a company's balance sheet carefully. Receivables offer confidence of future cash ... Read Answer >>
  3. What is the difference between accrual accounting and accounts payable?

    Understand the difference between accrual accounting, an accounting method, and accounts payable, which is a ledger entry ... Read Answer >>
  4. What are the components associated with working capital management?

    Learn what the three main components of working capital management are and how each is significant to efficient financial ... Read Answer >>
  5. Is good customer service something to look for in a company in which I am considering ...

    Learn about the importance of customer service when deciding whether to invest in a stock. Good customer service can ensure ... Read Answer >>
  6. What's the difference between accrued expenses and accounts payable?

    Learn how companies use accrued expenses and accounts payable on their balance sheet and the difference between the two liabilities. Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center