What is Accounts Receivable ?
1467 reads · Last updated: December 5, 2024
Accounts receivable (AR) are the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Accounts receivable are listed on the balance sheet as a current asset. Any amount of money owed by customers for purchases made on credit is AR.
Definition
Accounts receivable refers to the balance of goods or services delivered or used by a company to customers, for which the customers have not yet paid. Accounts receivable is listed as a current asset on the balance sheet. Any amount owed by customers for credit purchases is considered accounts receivable.
Origin
The concept of accounts receivable originated from the practice of credit sales in business transactions. As business activities became more complex, companies began allowing customers to pay after receiving goods or services, a practice that became common during the industrialization of the late 19th and early 20th centuries.
Categories and Features
Accounts receivable can be categorized based on customer type, length of the credit period, etc. Key features include high liquidity and risk associated with customer creditworthiness. Companies typically determine the credit period for accounts receivable based on the customer's credit rating.
Case Studies
Case 1: Apple Inc. lists a significant amount of accounts receivable in its financial statements, reflecting its credit sales to global distributors and retailers. Case 2: Walmart maintains a low bad debt rate through strict credit policies and effective accounts receivable management.
Common Issues
Common issues include cash flow problems due to delayed customer payments and how to effectively manage and collect accounts receivable. Companies often mitigate risks through credit checks and collection procedures.
