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Definition

Accounts Receivable

Accounts Receivable are amounts that the clients owe to the service provider. “Account” refers to the monetary amount and “receivable” refers to the fact that the service provider is yet to receive it. They are often shortened down to their initials - AR. 

These accounts result from the sale of goods and services. Companies generally expect to collect their receivables within 30 to 60 days. Accounts receivable are the most significant type of claim held by a company.

Accounts payable is the exact opposite of AR from either side of the business deal. The accounts receivable to the service provider are the accounts payable to the client. 

It helps determine the situation related to these accounts yet to be received by clarifying that they are assets and not liabilities to the service provider.

Three accounting issues associated with AR are:-

  1.  Recognizing AR
  2.  Valuing AR
  3.  Disposing of AR

 

For example, if a business has opted for the internet connection from an internet service provider but has yet to pay the connection bill of $30, the payable amount would be the accounts receivable and it can be paid via any means primarily agreed upon between the two parties.

 

Use of the Term in Sentences

  • The accounts receivable are to be paid via cash. 
  • Accounts receivable are always assets since the service provider is entitled to receive the payment sooner or later.     

 

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