What Is Accounts Receivable?

What Is Accounts Receivable?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Accounts receivable refers to the outstanding invoices a company has or the money the company is owed from its clients. In other words, it’s a record of the clients’ debts to the company for goods or services delivered but not yet paid for. This makes accounts receivable an asset, as the money belongs to the company, but it hasn’t been received yet.

Related Questions

1. What is the purpose of Accounts Receivable?

The main purpose of Accounts Receivable is to track and manage the money that is owed to a company by its customers. It gives a clear picture of the expected revenue and assists in maintaining healthy cash flow.

2. How does Accounts Receivable impact cash flow?

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Accounts Receivable directly impacts cash flow, as it represents money owed to the company. A high amount in accounts receivable can tie up cash that could otherwise be utilized for other purposes.

3. Can Accounts Receivable be written off?

Yes, if an account becomes uncollectible, it can be written off as a bad debt expense. This process reduces the total accounts receivable reported on the company’s balance sheet.

4. How is Accounts Receivable managed?

It is managed through a process known as credit management. This process typically involves credit checks on potential customers, creating credit terms and policies, and practices for collecting overdue payments.

5. What is the difference between Accounts Receivable and Accounts Payable?

Accounts Receivable is money owed to a company, while Accounts Payable is money a company owes to its suppliers. In short, Accounts Receivable is an asset, while Accounts Payable is a liability.