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August 28, 2026·Accounting·Pasento

What is accounts receivable?

Accounts receivable is money customers owe you for goods or services you already delivered but have not been paid for yet. You will see it abbreviated as AR. It is a current asset on the Balance Sheet, not a liability and not revenue itself.

Definition

Accounts receivable is a current asset. It is money you expect to collect within a year, usually within 30 or 60 days of the invoice date.

On the books, this is an asset, not a liability, and not revenue itself. Revenue was recorded when you invoiced the customer.

If you keep books on the cash basis, you typically do not record AR at all. You record the sale when the customer pays.

On the accrual basis, you record the invoice when you earn it, even if cash has not reached the bank. The unpaid amount sits in AR until the customer settles it.

Where it shows up

Balance Sheet: Located in the current assets section.

P&L: Related to revenue that has been invoiced, but not collected.

Cash flow: Decreases in this account, reported cash from operating activities increases.

See also: Invoice · Accounts Receivable Aging · Days Sales Outstanding · Current Assets

When you look at your Balance Sheet, accounts receivable sits in current assets, near cash. When accounts receivable is high, it usually means more uncollected invoices or slower collections; when it is low it usually means customers have paid or you sell mostly for cash.

The profit and loss statement does not list AR as a line, because the related revenue already hit the P&L when you invoiced. Collecting later does not create a second sale.

On the Statement of Cash Flows, the payment is the event that matters. Cash goes up when the customer pays, and the AR balance goes down with it.

Many AR aging reports list the same invoices by how late they are: current, 30 days, 60 days, and 90 days past due.

How it works

A typical path starts with a sale. You deliver goods or finish a service for a customer.

You then send an invoice. The invoice is the document that says what they owe, and it is entered against that customer in your books.

The customer list is simply the roster of who buys from you and how they pay. Duplicate names or old addresses on that list make it easy to invoice the wrong person or enter the same sale twice.

Once the invoice is entered, AR goes up. Unpaid invoices stay on the aging report until they are paid or written off.

When the customer pays, you record a check, an ACH, or a card payment. The AR balance for that invoice drops to zero, and cash goes up by the same amount.

If a customer pays only part of an invoice, AR falls by that partial amount. The rest stays open on the aging report until the balance is cleared.

Some invoices never get paid. When you write one off, AR goes down and you record a bad-debt expense.

Example

A neighborhood pottery studio delivers a batch of mugs to a gallery on Monday and emails an invoice for $500, due in 30 days.

The studio records:

Debit: Accounts receivable $500

Credit: Sales $500

Accounts receivable (an asset) and sales (revenue) both go up by $500. Cash has not moved.

The Balance Sheet is larger on the asset side. The profit and loss statement now shows $500 of sales.

Thirty days later the gallery pays:

Debit: Cash $500

Credit: Accounts receivable $500

AR for that invoice falls back to zero, and cash rises by $500. The sale stays on the profit and loss statement; collecting the cash does not record it again.

Common mix-ups

Accounts receivable is not the same thing as revenue. Invoicing raises AR and records the sale; collecting later does not create a second sale.

Accounts receivable is not accounts payable. AR is money customers owe you; AP is money you owe vendors.

Cash is money already in the bank; AR is unpaid invoices still sitting as an asset. A desk drawer of invoices that never got entered is still money customers owe you, even if it is not on the books yet.

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