What is the Accounts Receivables of a Company?

Accounts Receivables: TL;DR

Accounts Receivable (AR) is the amount of money owed to a company by its customers for goods or services delivered or used but not yet paid for. It is considered an asset on a company's balance sheet.

Accounts Receivables = Outstanding Invoices

In-Depth Understanding

Going beyond the basic definition, Accounts Receivable (AR) represents the line of credit that a company extends to its customers in exchange for goods or services delivered. This amount is recorded as an asset on a company's balance sheet, as it is legally enforceable and the company has a right to collect it.

The management of AR is critical for a company's cash flow and overall financial health. If the AR is high, it means that the company has a considerable amount of revenue that it has not yet collected. On the other hand, if the AR is low, it might indicate that the company is not making enough credit sales or is efficient at collecting debts.

It's important to note that while AR is considered an asset, not all receivables may ultimately be collected. Hence, companies often establish an allowance for doubtful accounts, which is a contra-asset account that reduces the total AR to a more realistic and collectible amount.

Real-world Examples

A Retail Company - Macy's Inc.

For Macy's, accounts receivable could include the money owed by customers who have purchased goods on credit. This could be through credit sales in their physical stores or through their online platform.

A Manufacturing Company - Boeing Co.

Boeing's accounts receivable might include the money owed by airlines or other customers who have ordered airplanes or services but have not yet paid in full. These receivables are considered an asset until the customers pay their bills.

A Services Company - Accenture Plc.

For Accenture, a global professional services company, accounts receivable might include the money owed by clients for consulting or outsourcing services already delivered but not yet paid for. This reflects the credit terms and payment cycle typical in the business-to-business (B2B) service industry.