Accounts Receivable

What Is Accounts Receivable (AR)?

Accounts Receivable is money customers owe you for products or services they’ve received but haven’t paid for yet.

It includes:

• Unpaid customer invoices
• Credit sales
• Payment commitments
• Outstanding bills

👆 By the way, an interesting fact: The concept of accounts receivable dates back to ancient Mesopotamia, where merchants used clay tablets to track customer debts!

Why is Accounts Receivable Important?

Cash Flow Management 💵

• Shows expected incoming cash
• Helps predict cash flow
• Guides business decisions
• Supports operations funding

Business Health Indicator 🏥

• Reflects sales efficiency
• Shows collection effectiveness
• Indicates customer creditworthiness
• Reveals payment trends

Financial Planning 📊

• Helps budget future expenses
• Guides investment decisions
• Supports growth planning
• Assists in credit decisions

What’s the Difference Between Accounts Receivable and Accounts Payable?

They’re opposite sides of the same coin! 🪙

Accounts Receivable (AR)

• Money owed TO you
• From customer purchases
• Asset on balance sheet
• Increases working capital
• Example: Customer owes you $1,000 for services

Accounts Payable (AP)

• Money you owe TO OTHERS
• For supplier purchases
• Liability on balance sheet
• Decreases working capital
• Example: You owe supplier $1,000 for materials

Think of it this way:

• AR = Money coming IN 📥
• AP = Money going OUT 📤