Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accounts Receivable is classified as a current asset on the balance sheet. It represents the credit a company extends to its customers. Effective AR management involves setting clear payment terms, sending timely invoices, following up on overdue payments, and maintaining an aging report. High AR relative to revenue may indicate collection problems.
A consulting firm completes a ₹2,00,000 project for a client with net-30 payment terms. The ₹2,00,000 is recorded as Accounts Receivable until the client pays.
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
A DSO of 30–45 days is generally considered healthy. Lower DSO means faster collection. However, the ideal DSO varies by industry — construction may have 60–90 days while retail is near zero.
Uncollected AR is written off as Bad Debt Expense. Companies usually estimate bad debts using an allowance method based on historical collection rates.
Money a business owes to its suppliers or vendors for goods and services received but not yet paid for.
Money owed to a business that is unlikely to be collected and is written off as an expense, reducing both accounts receivable and profit.
The net amount of cash and cash equivalents moving into and out of a business during a specific period.
A commercial document issued by a seller to a buyer, detailing the products or services provided, quantities, prices, and payment terms.
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