Accounts Receivable

What Is Accounts Receivable?

Accounts Receivable (AR) refers to the money owed to a business by its customers for goods or services that have been delivered but not yet paid for. It’s recorded as an asset on the balance sheet because it represents future cash inflow.

How It Works

When you invoice a client:

1. The invoice is logged in your AR ledger.

2. The amount remains “receivable” until the client pays.

3. Once paid, it’s converted from AR to cash.

Why It’s Important

• Cash Flow Health: AR is future income. Tracking it ensures you know what’s coming in and when.

• Client Accountability: Helps you follow up on overdue invoices and maintain professional boundaries.

• Financial Accuracy: AR affects your profit and loss statements and tax reporting.

• Business Valuation: Strong AR management signals stability and reliability to lenders or investors.

Quick Tip

If you’ve sent an invoice and haven’t been paid yet — that’s accounts receivable. Managing it well means getting paid faster and keeping your business running smoothly.