What are Accounts Receivable?

 What are Accounts receivable?

Account receivable is the money that a company has the authority to receive because the company sold goods and services to customers. Account Payable is liabilities and Account receivables are assets. Accounts receivables are also known as commercial receivables. Accounts receivable is a category of transaction dealing with the billing of customers for goods and services.


Why Do Businesses Have Accounts Receivable?

Most of the companies work by allowing some portion of their sales to be on credit. In case, a business offers this type of credit to many customers who are invoiced sometimes. The praxis makes customers hassle-free of physically making payments for each transaction.



Account Receivable


Accounts Receivable Advantages

Accounts receivable is a critical component of a company's basic analysis. Accounts receivable is a current asset, hence it reflects a company's liquidity, or it's capacity to meet short-term commitments without generating new cash flows.

Accounts receivable are frequently evaluated by fundamental analysts in the context of turnover, also known as accounts receivable turnover ratio, which indicates the number of times a firm has collected on its accounts receivable balance within an accounting period. Days sales outstanding study, which evaluates the average collection duration for a firm's receivables balance over a specific period, would be a step further.


Accounts Receivable Example

An example of accounts receivable includes an electric firm that invoices its customers after they have received their power. As it waits for its consumers to pay their bills, the electric company registers outstanding invoices as an account receivable.

Most businesses function by allowing some of their sales to be made on credit. Businesses may grant this credit to regular or special clients who receive recurrent bills. Customers can avoid the trouble of physically making payments for each transaction by using this method. In other circumstances, firms typically provide all of their customers with the option of paying after getting the service.

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