An account receivable (AR) is money that a business entity, either an individual or a corporation, owes to another individual, business, or government, for services or goods that have been acquired and utilized, but not yet paid for. Although accounts receivable can exist for a wide range of products and services, they are usually due within a short time span, like a single operating cycle that that good or service.
On Financial Statements
For public companies that are required to create and publicize certain financial statements, accounts receivable are almost always itemized as assets, because they represent a legal obligation that the customer or customer entity owes to the individual or business that performed the service or sold the good.
An account receivable for one individual or corporation is virtually always an account payable for another business entity or individual.
- Until an individual receives a paycheck at the end of each pay period, they technically possess an account receivable, as they have already rendered a service to their employer but have not yet received financial compensation for it.
- Many businesses allow a certain percentage of their goods and services to be sold on credit. This allows them to avoid the periodic hassles of dealing with large amounts of cash or money transfers when vending goods or services. When you purchase a car and agree to pay the dealership through monthly payments (without going through a bank as a middle man), this is sometimes considered an account receivable, because the car company has already sold you the good (in this case, the car) but have not yet received your full payment for the car.