accounts receivable
/ A-R /
Imagine you run a small print shop. A loyal business customer comes in, you print their 2,000 of brochures, and they say 'put it on our account, we'll pay at month's end.' You handed over the goods but you don't have the cash yet — you have something almost as good: their promise to pay. That promise, the money your customers owe you for goods or services already delivered, is accounts receivable.
Accounts receivable is an asset on the balance sheet: a legal claim to collect cash from customers in the near future, usually arising from sales made on credit. When you make a credit sale, you record revenue and an account receivable at the same time; later, when the customer pays, the receivable shrinks and cash grows — but total assets don't jump again, because one asset simply converted into another. Most receivables are short-term, expected to be collected within 30 to 90 days, so they sit among current assets. If a print shop has billed 50,000 to customers who haven't paid yet, its accounts receivable is 50,000.
Receivables are central to the cash flow story: a company can be highly profitable on paper yet starved for cash because too much of its 'earnings' is tied up in uncollected receivables. Managers watch how fast receivables turn into cash, and worry about customers who may never pay (which is why the allowance for doubtful accounts exists). A common beginner error is to assume receivables are 'as good as cash' — they are an asset, but only to the extent customers actually pay.
On June 1 a supplier ships 8,000 of parts to a factory on credit. It records 8,000 of revenue and 8,000 of accounts receivable that day. On June 30 the factory pays, so cash rises by 8,000 and accounts receivable falls back to 0 — the asset simply changed form.
A credit sale creates a receivable now and collects the cash later — the same asset, two stages.
Receivables are reported at the amount expected to be collected, not the full billed amount; the realistic figure subtracts an estimate for customers who won't pay.