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Accounts Receivable

Accounts Receivable (AR) is the money owed to a business by its clients or customers for goods or services rendered.

Accounts Receivable dates back to 2000 B.C. in Mesopotamia. It was a simple form that allowed traders to pick up goods and pay later. Gradually, it gained adoption and was fully established in the banking system in the 1970s.

What are accounts receivable?

This signifies the total amount owed to a company by its debtors. Companies document their finances in what is known as a balance sheet. They can also be referred to as receivables.

Entries into this are categorized as assets and liabilities. Assets show what the company owns, while liabilities show what they owe. In that light, accounts receivables are categorized as assets. This is because they represent pending cash payments from a firm’s customers.

How do accounts receivable work?

» Example: A soft drink distributor who takes up 10 crates to pay up in two weeks.

The above transaction is entered as accounts receivable in the balance sheet. It helps identify credit lines offered to customers and are redeemable on specific dates.

An invoice is issued when such goods or services are delivered. This states the quantity, cost, delivery date, and due date for payment. That way, the customer and firm know the transaction details.

Usually, such transactions come with conditions. For instance, it is agreed that a customer will only access receivables after a year and pay up within two weeks.

Key Summaries

  • Accounts receivables date back as far as 2000 B.C.
  • They are assets to companies.
  • Accounts receivables represent outstanding cash owed to the firm for products or services delivered.

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