Accounts Receivable.

In plain English

Accounts receivable (often shortened to AR) is the total money customers owe your business for products or services you have already provided on credit. When you send an invoice and the customer has not paid yet, that amount sits in accounts receivable until the cash arrives. It is counted as an asset on your balance sheet because it is money you expect to collect. The longer an invoice goes unpaid, the higher the risk you never collect it, which is why businesses track how old their receivables are.

01Why it matters

A business can look profitable on paper while running out of cash, because sales counted as accounts receivable are not the same as money in the bank you can spend.

02The math, step by step

A web designer delivers $10,000 of work across three clients in March and bills them on 30-day terms. All $10,000 is accounts receivable until the clients pay. If one client owing $4,000 disappears, that receivable may have to be written off as a loss.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT