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Accounts receivable

Definition

Money owed to a business by another business or individual in exchange for property or services that were provided on credit.  The settlement of an account receivable begins by sending an invoice to the customer.  A company enters accounts receivable under "current assets" on its balance sheet. 

Illustrative caselaw

See, e.g. United States v. Berg, 250 F.3d 139 (2d Cir. 2001).

See also

Definition from Nolo’s Plain-English Law Dictionary

Money due or owed to a business or professional by customers or clients for goods or services. Generally, accounts receivable refers to the total amount due to a business and is considered in calculating the value of the business.

Definition provided by Nolo’s Plain-English Law Dictionary.

August 19, 2010, 5:10 pm

 

Spiffy Cleaners is a dry-cleaning business that wants to buy new equipment.  Unable to get a loan on favorable terms, Spiffy Cleaners decides to sell its accounts receivable to a factor. 

On their face, the accounts receivable should generate $20,000 in the next four months.  However, the factor buys them for $15,000 after heavily negotiating with Spiffy Cleaners about the risk of non-payment from certain customers.

Now, Spiffy Cleaners can use cash to buy equipment, and any payments from customers whose accounts were sold will be forwarded to the factor.

"The technical definition for 'account receivable,' as 'an amount due a business on account from a customer who has bought merchandise or received services,' is the appropriate definition to read into RCW 4.16.040(2) [a Washington state statute governing actions on accounts receivable]."

"Tingey seeks to collect a balance owed to his legal business by a client for legal services performed on behalf of that client. . . . The six-year limitation of RCW 4.16.040(2) for '[a]n action upon an account receivable incurred in the ordinary course of business' provides the statute of limitations in this action."

Tingey v. Haisch, 152 P.3d 1020, 1024, 1026 (Wash., 2007).

"Operating cash, inventory, and accounts receivable constitute typical current assets. Current liabilities consist of accounts payable, such as taxes, wages, rents, interest payable, and short-term debt."

Verizon Communications, Inc. v. F.C.C., 535 U.S. 467, 485 (2002).