What is Accounts Receivable?
by JR Rooney

Accounts receivable is the first step in a series of collection attempts dealing with the billing of customers who owe money to a consumer, business or an organization for products and/or services that have been provided to the customer. This is sometimes done in a small organization by writing an invoice and sending via mail, fax or email.

On a business balance sheet, accounts receivable is the amount that customers owe the business. Aka AR, they are classified as current assets. To record a journal entry for a sale on account, 1 must debit a receivable and credit a revenue account. When the customer pays off the account, 1 debits cash and credit the receivable in the journal entry. The ending balance on the trial balance sheet for accounts receivable is always debit.

Companies that have become much too large to perform this task by hand will generally use accounting software like Quick Books to preform this task.

Associated accounting issues include recognizing accounts receivable, valuing accounts receivable, and disposing of accounts receivable.

There are many types of accounting transactions like accounts payable (AP), payroll and trial balance.

Since not all customer debts will be collected, businesses typically record an allowance for bad debts which is subtracted from total accounts receivable. When accounts receivable are not paid, some companies turn them over to collection agencies. However, many debtors still do not pay; in those cases, smart creditors turn to a collection agency.