What are Accounts Receivable?
Accounts receivable refer to the amounts of money owed to a business by its customers or clients for goods sold or services rendered on credit. When a business sells products or provides services on credit, it creates an account receivable, which represents a promise of payment from the customer at a later date. Accounts receivable reflect the amounts owed to a business by its customers for credit sales and play a vital role in the financial health and performance of the business.
Key Takeaways:
- Accounts receivable are classified as current assets on a company’s balance sheet, as they are expected to be collected within a relatively short period, typically within one year.
- Accounts receivable are created when a business sells goods or services to a customer on credit terms.
- Businesses must effectively manage their accounts receivable to ensure timely collection and minimize the risk of bad debts.
Table of Content
- Accounts Receivable Process
- Why is Accounts Receivable important?
- Accounts Receivable vs. Accounts Payable
- Benefits of Accounts Receivable
- Risks of Accounts Receivable
- How to Record Accounts Receivable?
- Accounts Receivable – FAQs
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