Accounts Receivable - AR

AAA

DEFINITION of 'Accounts Receivable - AR'

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

INVESTOPEDIA EXPLAINS '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.

VIDEO

Loading the player...
RELATED TERMS
  1. Accounts Receivable Subsidiary ...

    An accounting ledger that shows the transaction and payment history ...
  2. Accounts Receivable (A/R) Discounted

    Outstanding invoices representing money owed to a creditor which ...
  3. Net Receivables

    The total money owed to a company by its customers, minus the ...
  4. Overadvance

    A short-term commercial loan taken by a company in order to purchase ...
  5. Receivables Turnover Ratio

    An accounting measure used to quantify a firm's effectiveness ...
  6. Current Assets

    1. A balance sheet account that represents the value of all assets ...
RELATED FAQS
  1. How can you use a cash flow statement to make a budget?

    To use the cash flow statement to make a budget, a company needs to combine the operating cash flow portion of its cash flow ... Read Full Answer >>
  2. What does a low working capital ratio show about a company's working capital management?

    The working capital ratio is commonly used to assess a company's financial performance. Low working capital ratio values, ... Read Full Answer >>
  3. When are current assets converted to liquid assets?

    Current assets may be converted to liquid assets at any time, but by definition, they are expected to be either used up or ... Read Full Answer >>
  4. How long are accounts receivable allowed to be outstanding?

    Since there are no specific legal requirements limiting the time period accounts receivable can be outstanding, in essence, ... Read Full Answer >>
  5. How should investors interpret accounts receivable information on a company's balance ...

    Investors should interpret accounts receivable information on a company's balance sheet as money that the company has a reasonable ... Read Full Answer >>
  6. Are accounts receivable used when calculating a company's debt collateral?

    On a company’s balance sheet, any cash flow-generating assets are recorded as debt collateral or collateralized debt obligations ... Read Full Answer >>
  7. What happens if a company doesn't think it will collect on some of its receivables?

    The accounts receivable account, or receivables for short, is created when a company extends credit to a customer based on ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  2. Fundamental Analysis

    Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.
  3. Personal Finance

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  4. Investing Basics

    The Working Capital Position

    Learn how to correctly analyze a company's liquidity and beat the average investor.
  5. Investing Basics

    Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.
  6. 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.
  7. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  8. Entrepreneurship

    When Wholesale Funding Goes Bad

    The wholesale funding process is extremely dependent on the credit markets. Therefore, it is not always the best option for a business.
  9. Markets

    Cash Flow On Steroids: Why Companies Cheat

    Pressure to be the best can sometimes push corporations to cheat. Learn how they do it and how to spot it.
  10. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center