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What is meant by accounts receivable.

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What is meant by accounts receivable.
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Tejas Gaikwad
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What is meant by accounts receivable. - August 7th, 2013

Generally, each organization provides credit facility to its customers. In such cases, the money owed to the business by its customers (individual or corporation) on account of products/services that have been delivered or used is referred to as accounts receivable.

Accounts Receivable is treated as an asset by the business and can be found under the “Current Assets” of the Assets section of a balance sheet.

The customers which owe the business are commonly referred to as “Sundry Debtors”.

Technically, an entry which entails credit has both receivables as well as payable. For the organization lending credit, it is accounts receivable while for the organization which owes money, it is an accounts payable.


Accounts receivable represents money owed by entities to the firm on the sale of products or services on credit. In most business entities, accounts receivable is typically executed by generating an invoice and either mailing or electronically delivering it to the customer, who, in turn, must pay it within an established time frame, called credit terms or payment terms.


The accounts receivable department uses the sales ledger, because a sales ledger normally records:-
1) The sales a business has made.
2) The amount of money received for goods or services.
3) The amount of money owed at the end of each month varies (debtors).


The accounts receivable team is in charge of receiving funds on behalf of a company and applying it towards their current pending balances.
Collections and cashiering teams are part of the accounts receivable department. While the collections department seeks the debtor, the cashiering team applies the monies received.


It is one of a series of accounting transactions dealing with the billing of a customer for goods and services that the customer has ordered. These may be distinguished from notes receivable, which are debts created through formal legal instruments called promissory notes.


How It Works/Example:-

Let's assume that Company XYZ sells $1 million of widget parts to a widget manufacturer and gives that customer 60 days to pay for those parts. Once Company XYZ receives the order and/or sends the parts and/or sends the customer an invoice, it will decrease its inventory account by $1 million and increase its accounts receivable by $1 million. When 60 days has passed and Company XYZ is paid, it will increase cash by $1 million and reduce its accounts receivable by $1 million.

A/R is an asset, and as such, it appears on the balance sheet. In particular, A/R is a current asset, meaning that the amount owed is expected to be received within the next 12 months.

When accounts receivable go down, this is considered a source of cash on the company's cash flow statement, and as such, it increases the company's working capital (defined as current assets minus current liabilities). When accounts receivable goes up, this is considered a use of cash on the company's cash flow statement because the company is "stretching out" the time it takes to receive money owed to it and thus is using cash more quickly.
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Jitendra Mazee
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Re: What is meant by accounts receivable. - April 19th, 2016

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Originally Posted by tejas.gaikwad.1044 View Post
Generally, each organization provides credit facility to its customers. In such cases, the money owed to the business by its customers (individual or corporation) on account of products/services that have been delivered or used is referred to as accounts receivable.

Accounts Receivable is treated as an asset by the business and can be found under the “Current Assets” of the Assets section of a balance sheet.

The customers which owe the business are commonly referred to as “Sundry Debtors”.

Technically, an entry which entails credit has both receivables as well as payable. For the organization lending credit, it is accounts receivable while for the organization which owes money, it is an accounts payable.


Accounts receivable represents money owed by entities to the firm on the sale of products or services on credit. In most business entities, accounts receivable is typically executed by generating an invoice and either mailing or electronically delivering it to the customer, who, in turn, must pay it within an established time frame, called credit terms or payment terms.


The accounts receivable department uses the sales ledger, because a sales ledger normally records:-
1) The sales a business has made.
2) The amount of money received for goods or services.
3) The amount of money owed at the end of each month varies (debtors).


The accounts receivable team is in charge of receiving funds on behalf of a company and applying it towards their current pending balances.
Collections and cashiering teams are part of the accounts receivable department. While the collections department seeks the debtor, the cashiering team applies the monies received.


It is one of a series of accounting transactions dealing with the billing of a customer for goods and services that the customer has ordered. These may be distinguished from notes receivable, which are debts created through formal legal instruments called promissory notes.


How It Works/Example:-

Let's assume that Company XYZ sells $1 million of widget parts to a widget manufacturer and gives that customer 60 days to pay for those parts. Once Company XYZ receives the order and/or sends the parts and/or sends the customer an invoice, it will decrease its inventory account by $1 million and increase its accounts receivable by $1 million. When 60 days has passed and Company XYZ is paid, it will increase cash by $1 million and reduce its accounts receivable by $1 million.

A/R is an asset, and as such, it appears on the balance sheet. In particular, A/R is a current asset, meaning that the amount owed is expected to be received within the next 12 months.

When accounts receivable go down, this is considered a source of cash on the company's cash flow statement, and as such, it increases the company's working capital (defined as current assets minus current liabilities). When accounts receivable goes up, this is considered a use of cash on the company's cash flow statement because the company is "stretching out" the time it takes to receive money owed to it and thus is using cash more quickly.
Hey tejas, thanks for sharing the information. Well, as we know that accounts receivable is the money that an organization has a right to receive due to the fact that it had given consumers with goods or services. For more detailed information, please download my presentation.
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