Accounts Receivable (AR)

Accounts receivable (AR) is the balance of money due to a business from its customers for products or services that have been delivered or used. It is considered an asset because it represents a future economic benefit. Accounts receivable are typically reported on a company's balance sheet as a current asset.

There are two main types of accounts receivable: trade receivables and non-trade receivables. Trade receivables are amounts due from customers for products or services that have been sold on credit. Non-trade receivables are amounts due from other parties, such as employees for advances or loans, or suppliers for returns or discounts.

Accounts receivable are typically managed by the accounts receivable department of a company. This department is responsible for tracking customer payments, collecting overdue accounts, and writing off bad debts.

The management of accounts receivable is important for a number of reasons. First, it helps to ensure that a company is paid for its products or services in a timely manner. Second, it helps to reduce the risk of bad debts. Third, it can help to improve a company's cash flow.

There are a number of ways to manage accounts receivable. One common method is to use a credit policy. A credit policy specifies the terms of credit that a company offers to its customers, such as the length of the credit period and the interest rate charged on overdue accounts.

Another common method of managing accounts receivable is to use a collection process. A collection process specifies the steps that a company takes to collect overdue accounts, such as sending dunning letters, calling customers, and filing lawsuits.

Accounts receivable is an important asset for a business. By managing accounts receivable effectively, a company can improve its cash flow and reduce the risk of bad debts.