What is Accounts receivable?

Accounts receivable (Definition)

Accounts receivable is the amount of money that clients owe to a business in exchange for the goods and services that the company has provided on credit to the client. The business will generally notify the client of the amount owing by issuing an invoice. Accounts receivable are current assets, which means that the balance of the account is due within one year. If a business has receivables, it means it has made a credit sale but has not yet collected the payment.

In accounting, accounts receivable is added to a balance sheet as an asset as it is money that a business is expecting to receive (and consumers are legally obligated to pay this amount). There are some instances where accounts receivable may be removed from a balance sheet, such as when consumers cannot pay the debt (for example, if they go into insolvency). By comparing accounts receivable with sales, businesses can identify problems with their debt collection systems.