Accounts Receivable

Accounts Receivable (AR) tracks money customers owe a business for delivered goods or services, with credit sales recorded as current assets on the balance sheet. Businesses expect to collect these receivables within one operating cycle, making AR a critical measure of short-term liquidity and overall financial health. By actively managing accounts receivable, companies can accelerate cash inflows, reduce credit risk, and maintain stronger control over working capital.

Accounts Receivable (AR) arises when a company invoices customers for goods delivered or services provided.** The invoiced amount remains in AR until customers pay, dispute, or the company writes it off. To account for potential non-payment, businesses record an allowance for doubtful accounts, reporting AR at its net realizable value.

This ensures financial statements reflect realistic cash expectations and supports accurate liquidity and working capital management.

Accounts Receivable is a key component of working capital and directly impacts cash flow and liquidity. Effectively managing AR ensures accurate financial reporting, improves cash flow forecasting, and reduces credit risk.

By monitoring outstanding invoices, enforcing proper credit controls, and supporting timely collections, businesses can maintain stronger financial stability and make more informed operational and strategic decisions.

Businesses measure and monitor Accounts Receivable using metrics such as Days Sales Outstanding (DSO), AR turnover ratio, and aging schedules. These tools help track how quickly customers pay, identify overdue balances, and evaluate customer credit behavior.

By analyzing this information, companies gain insights to improve collections, manage credit risk, and strengthen overall financial performance.

Recording Accounts Receivable begins with generating an invoice, which documents the details of a transaction and serves as an official record for both the business and the customer. The invoice identifies the company or unit providing the goods or services and clearly states the customer or recipient receiving them.

It also includes a description of the goods or services delivered, along with the date of delivery or service. The invoice specifies the quantity, amount, and price, so both parties clearly understand the transaction.

For Accounts Receivable, the invoice also specifies the payment terms. After issuing the invoice, the business tracks the customer’s payment and records the transaction in its accounting system. Businesses post AR to a subsidiary ledger, and the control account in the general ledger updates to summarize all transactions and maintain organized books.

For each AR transaction, the company records a journal entry by debiting Accounts Receivable and crediting Revenue. When the customer pays, the company credits Accounts Receivable and debits Cash. This clears the receivable, records the payment, and ensures financial records remain accurate and up to date.

Examples of Accounts Receivable include unpaid customer invoices and credit sales of goods delivered but not yet paid for. They also encompass subscription or licensing fees, professional service billings, healthcare claims, utility charges, and earned but uncollected interest or service fees. These represent amounts the business expects to collect and convert into cash in the near term.

Requesting a demo of Cashbook allows you to see the software in action and understand how it can transform financial processes. The demo highlights features such as cash application, bank reconciliation, accounts payable automation, and real-time cash flow visibility. During a short discovery call, we identify your specific pain points and financial processes that could benefit from automation. The demo is then tailored to your needs, showing how Cashbook integrates with your ERP, improves efficiency, reduces manual errors, and enables your team to focus on higher-value work.