Legal Definitions - accounts 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. When a business sends an invoice to a customer, it creates an accounts receivable. This is recorded as a current asset on the business's balance sheet.

Example: A restaurant supply shop sells $10,000 worth of equipment to a restaurant on credit. As soon as the equipment is delivered to the restaurant, the business records an accounts receivable on its books. Once the restaurant makes the full payment (in whatever time frame set out under the terms of the agreement), the accounts receivable is essentially replaced with cash.

Legal Example: In the case of United States v. Berg, accounts receivables were used in a legal setting. The defendant was accused of fraudulently inflating the accounts receivable of his business to obtain a loan. This case illustrates the importance of accurately recording accounts receivable and the consequences of fraudulent behavior.

Overall, accounts receivable is an important aspect of a business's financial health. It represents money that is owed to the business and can impact cash flow and profitability.