Legal Definitions - account receivable

Definition:Accounts receivable (A/R) is the money that a business is owed by another business or individual for goods or services provided on credit. The business sends an invoice to the customer to request payment. A company records accounts receivable as a current asset on its balance sheet.

Example: A clothing store sells $500 worth of clothes to a customer on credit. The store records an account receivable of $500 on its books. Once the customer pays the full amount, the accounts receivable is replaced with cash.

Explanation: This example illustrates how a business records accounts receivable when it sells goods or services on credit. The store provides clothes to the customer and sends an invoice requesting payment. The customer owes the store $500 until they pay the full amount. The store records the $500 as an accounts receivable on its balance sheet until the customer pays the full amount.