accounts receivable

Accounts receivable (abbreviated AR or A/R ) is an accounting term, which refers to the money owed to a business by another business or individual in exchange for property or services that were provided on credit . In other words, accounts receivable stands for the money that have not been paid to a business. This is because when offering services or selling goods, a business could allow its customer to defer payment. In a business’s balance sheet or general ledger, accounts receivable is typically under the category of current assets because they offer value. Yet, accounts receivable may not qualify as a revenue. The settlement of an account receivable begins by sending an invoice to the customer.

For example, a restaurant supply shop sells $10,000 worth of equipment to a restaurant on credit. As soon as the equipment is delivered to the restaurant the business records an account receivable on its books . Once the restaurant makes the full payment (in whatever time frame set out under the terms of the agreement ) the accounts receivable is essentially replaced with cash. The case of United States v. Berg is an example of accounts receivables used in a legal setting.