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What is Account Receivable? A Comprehensive Legal Overview
Definition & Meaning
Account receivable refers to the amount of money that a customer owes to a business for goods or services that have been delivered but not yet paid for. This financial concept is crucial in accounting, as it represents a claim for payment that the business expects to receive in the future. Essentially, when a company sells products or services on credit, it records this transaction as an account receivable until the customer settles the debt. It is important to note that income from investments does not fall under this category.
Table of content
Legal Use & context
Account receivable is commonly used in various legal contexts, particularly in business and commercial law. It often involves contracts and agreements between the company and its customers. Legal professionals may deal with accounts receivable in cases related to collections, bankruptcy, or disputes over payment. Users can manage accounts receivable issues by utilizing legal templates available through services like US Legal Forms, which provide ready-to-use documents for invoicing and debt collection.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A software company sells a subscription service to a client and issues an invoice for $1,000, which the client agrees to pay within 30 days. Until the payment is made, this amount is recorded as an account receivable.
Example 2: A furniture retailer sells a dining set on credit for $500. The customer receives the dining set and promises to pay within two weeks. This $500 is considered an account receivable until the payment is received. (hypothetical example)
Comparison with related terms
Term
Definition
Key Differences
Accounts Payable
Money a company owes to its suppliers for goods or services received.
Accounts receivable is money owed to the business, while accounts payable is money the business owes.
Notes Receivable
A written promise for future payment from a debtor.
Notes receivable are formal agreements, while accounts receivable can be less formal.
Common misunderstandings
What to do if this term applies to you
If you are a business owner dealing with accounts receivable, ensure you keep accurate records of all invoices and payment terms. If a customer fails to pay, consider sending reminders or utilizing collection services. For those who prefer to handle it themselves, US Legal Forms offers various templates for invoicing and debt collection that can simplify the process. If the situation becomes complex, seeking professional legal advice may be necessary.
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