What are accounts receivable?

Accounts receivable refers to the amounts owed to a company by its customers for goods or services that have been delivered but not yet paid for. This is a crucial aspect of a company's financial operations, as it represents a claim for payment that is expected to be collected in the future. When a business makes a sale, it often allows the customer to purchase on credit, leading to the creation of accounts receivable until the customer pays the outstanding amount.

This definition aligns precisely with the concept of revenues that have been recognized but not yet received in cash. Monitoring accounts receivable is vital for managing cash flow, as it reflects the effectiveness of the company's credit policies and its ability to collect payments. A healthy accounts receivable balance indicates that a company is successfully selling its products or services on credit, while a high balance may suggest potential issues with credit collection or customer solvency.