Accounting
Accounts receivable
Accounts receivable (AR) is the money customers owe a business for goods or services that have been delivered and invoiced but not yet paid for.
What accounts receivable means
Accounts receivable is the total of all unpaid invoices a business has issued — the money it is owed and expects to collect. On the balance sheet, AR is recorded as a current asset because it represents cash the business will receive, usually within 30 to 90 days.
Every time you send an invoice on credit terms (like Net 30), that amount enters accounts receivable. When the customer pays, it moves out of AR and into cash.
Why AR matters
Accounts receivable is one of the clearest signals of a business’s cash flow health. A large, growing AR balance — especially with many past-due invoices — means money is tied up in unpaid work instead of in the bank.
Managing AR well means invoicing promptly, setting clear payment terms, and following up on overdue accounts. Metrics like Days Sales Outstanding (DSO) measure how long, on average, it takes to collect.
Example: A studio delivers $12,000 of work in March on Net 30 terms. Until clients pay, that $12,000 sits in accounts receivable as an asset; as payments arrive, AR shrinks and cash grows.
FAQs
Frequently asked questions
Is accounts receivable an asset?
Yes. Accounts receivable is recorded as a current asset because it represents money the business is owed and expects to collect, usually within a year.
What is the difference between accounts receivable and accounts payable?
Accounts receivable is money owed to your business by customers; accounts payable is money your business owes to its suppliers. AR is an asset, AP is a liability.
Related terms
Accounts payable
Accounts payable (AP) is the money a business owes to its suppliers and vendors for goods or services it has received but not yet paid for.
Invoice
An invoice is a document a seller sends to a buyer that itemizes goods or services provided and requests payment by a stated due date.
Past-due invoice
A past-due invoice is an invoice that has not been paid by its due date, making the balance overdue.
Put it into practice
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