Outstanding short-term dues that a vendor or entity owes you.
Accounts Receivable (A/R):
- Represents the money owed to a business by its customers for goods or services purchased on credit.
- Considered assets on a company’s balance sheet as they signify the expectation of receiving cash in the near future.
Origin:
- Stems from credit sales transactions where a business allows customers to receive goods or services with a promise to pay later.
Management Importance:
- Cash Flow Management: Ensures a steady inflow of cash to cover expenses and maintain positive cash flow.
- Reduced Bad Debt: Effective credit policies and collection processes minimize uncollectable A/R (written off as bad debt).
- Improved Profitability: Timely collection translates to increased profitability.
Additional Points:
- A/R Turnover Ratio: Measures how efficiently a company collects outstanding debts.
- Credit Options: Businesses might offer varying credit terms (e.g., net 30) or extended payment plans.
In essence, A/R reflects the money a company is expecting to receive from customers, highlighting the significance of effective management for a business’s financial health.
