{"id":46204,"date":"2022-01-18T09:05:10","date_gmt":"2022-01-18T09:05:10","guid":{"rendered":"https:\/\/softco.com\/glossary\/accounts-receivable\/"},"modified":"2023-06-07T14:57:44","modified_gmt":"2023-06-07T13:57:44","slug":"accounts-receivable","status":"publish","type":"glossary","link":"https:\/\/softco.com\/uk\/glossary\/accounts-receivable\/","title":{"rendered":"Accounts Receivable (AR)"},"content":{"rendered":"\n
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Accounts Receivable (AR)<\/h1>\n<\/div><\/div>\n\n\n\n
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Successful businesses understand just how important it is to maintain a balance between expenses and income, and the accounts receivable process plays an important role in helping businesses achieve their growth targets. Many businesses offer goods on credit, which is why the accounts receivable is such an important department that directly impacts a company\u2019s profitability. <\/p>\n\n\n\n

What is Accounts Receivable?<\/h2>\n\n\n\n

In accounting terms, accounts receivable simply refers to the short-term debts that the company is owed by its debtors. These are sales made on credit, and the company records them once goods are delivered, in accrual accounting. This is essentially a line of credit offered to clients.\u00a0<\/strong><\/p>\n\n\n\n

When goods are delivered, the company issues an invoice to the buyer. The sum of all outstanding invoices is the accounts receivable. These are current assets, and customers have a legal obligation to clear the invoices. The company also expects debtors to clear the invoices within a year or less in most cases. <\/p>\n\n\n\n

Example of the Accounts Receivable Process<\/h3>\n\n\n\n

A number of companies now offer their standard services on credit. For instance, debtors may purchase goods worth X amount from the company in large quantities without paying anything upfront. Since goods are delivered, the company records the value of X in its accounts receivable account in the general ledger.<\/p>\n\n\n\n

When the debtor clears the payment, the company reduces the accounts receivable, and credits cash instead. The amount owed to a company is simply referred to as the accounts receivable. <\/p>\n\n\n\n

Key Information:<\/h3>\n\n\n\n