Definition of Accounts Receivable
What is the definition of the term accounts receivable? What does the term accounts receivable mean?
Accounts receivable is the money that is owed to a company by its customers. Accounts receivable is included in the "asset" column on a balance sheet.
Let's say that a plumbing company does a job and bills $800. This invoice is due to be paid within 30 days.
The $800 is listed as an "accounts receivable" until the customer has paid their invoice. The money is due to be received from the customer, which is why it is treated as an asset on a balance sheet. There is no reason to think that the customer won't pay.
If the customer doesn't end up paying their bill, then the "accounts receivable" turns into a "bad debt".
Another example of "accounts receivable" - an insurance broker bills a customer $1,500 for their house insurance for the upcoming year. The customer has been billed $1,500 for a service, so this is listed as an "accounts receivable" until they have paid.
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