Accounts receivable (AR) are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for. They are listed on the balance sheet as a current asset and represent the money owed by entities to the firm on the sale of products or services on credit. The accounts receivable process involves customer onboarding, invoicing, collections, deductions, exception management, and finally, cash posting after the payment is collected.

Accounts receivable are generally in the form of invoices raised by a business and delivered to the customer for payment within an agreed time frame. The time frame is called credit terms or payment terms and typically ranges from a few days to a fiscal or calendar year. When a company has receivables, it means that it has made a sale on credit but has yet to collect the money from the purchaser.

Accounts receivable are an important aspect of a business’s fundamental analysis. They are a current asset, so they measure a company’s liquidity or ability to cover short-term obligations without additional cash flows. To record a journal entry for a sale on account, one must debit a receivable and credit a revenue account. When the customer pays off their accounts, one debits cash and credits the receivable account to account for the payment.