Accounts Receivable (AR) refers to the money that a business is owed by its customers for goods or services that have been delivered but not yet paid for. In simpler terms, it’s the amount of credit a company has extended to its customers and is expecting to collect in the near future.

Explanation:

When a company sells a product or service and allows the customer to pay later usually within 30, 60, or 90 days that sale becomes an accounts receivable. This is recorded as an asset on the company’s balance sheet because it represents incoming cash.

Example:

Let’s say a company delivers office furniture to a client on June 1st, sends an invoice for $5,000 due in 30 days, and the client agrees to pay by July 1st. That $5,000 is the company’s accounts receivable until it’s paid.

Why It Matters:

• Cash Flow: Healthy AR helps maintain steady cash flow.
  
  
• Business Insight: Tracking AR helps identify late payers and manage credit risks.
  
  
• Financial Health: Too much unpaid AR might indicate trouble collecting money, which can strain a business.
  
  

In Summary:

Accounts Receivable (AR) is the money a company expects to receive from customers who bought on credit. It’s crucial for managing cash flow, tracking financial health, and ensuring smooth operations.