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Accounts Receivable Defined is Simply Money
Not Limited to BusinessesAccounts Receivable - Operating Lines of Credit | Accounts Receivable - A Brief History | 11/03/05
| Accounts Receivable defined is simply money which is owed to a company by a customer (account debtor) for products and services provided on credit. This transaction is treated as a current asset on a balance sheet. A specific sale is generally only treated as an account receivable after the customer has been sent an invoice. Accounts receivable usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from a few days or weeks to a few months.
If a company has receivables, it means a sale has been made but has not yet been collected from the account debtor. Most companies today operate by allowing some percentage of their sales to be on credit. These sales are usually to repeat customers. The customers are invoiced monthly, allowing the account debtor to avoid the requirement of making payments as each transaction occurs (COD).
A review of the balance sheet of any public company will show you accounts receivable recorded as an asset. As this type of transaction represents a legal obligation on the part of the account debtor to remit cash for its debts.
Accounts receivable are not limited to businesses. Individuals have receivables from their employers on a bi-weekly or monthly basis in the form of a paycheck. Employers legally owed this money to their employees for services already provided.
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