Accounts receivable (A/R) refers to the money owed to a business by its customers for goods or services that have been delivered but not yet paid for. This amount is typically recorded as an asset on the company's balance sheet, as it represents a legal obligation for customers to pay their debts. A/R usually consists of short-term debts, which are expected to be settled within a few days to a year.
Accounts receivable is commonly used in various legal and financial contexts, especially in business law and accounting. It plays a crucial role in financial reporting and cash flow management. Businesses may use legal forms to manage their A/R, such as invoices and collection letters, which can be created using templates from US Legal Forms. Understanding A/R is essential for businesses to ensure they maintain healthy cash flow and comply with financial regulations.
Here are a couple of examples of abatement:
Example 1: A software company provides a subscription service and sends an invoice to a client for $1,000. This amount is recorded as accounts receivable until the client pays.
Example 2: A retail store sells merchandise on credit, allowing customers to pay within thirty days. The total amount owed by customers at the end of the month is recorded as A/R. (hypothetical example)
| Term | Definition |
|---|---|
| Accounts Payable | Money that a business owes to its suppliers or creditors, in contrast to accounts receivable, which is money owed to the business. |
| Revenue | The total income generated by a business from its operations, which includes amounts from accounts receivable. |
If you are a business owner dealing with accounts receivable, consider the following steps:
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| Attribute | Details |
|---|---|
| Typical time frame for payment | Days to one year |
| Classification | Asset |
| Importance | Critical for cash flow management |
Accounts receivable is the money owed to a business, while accounts payable is the money a business owes to its suppliers.