Accounts receivable (AR) is the total customers owe a business for goods or services already supplied on credit. Also called debtors or trade receivables, it is a current asset because the business expects to collect the cash within a short period.
What it means
When a sale is made on credit, revenue is recognised straight away and a receivable is raised; the receivable falls away when the customer pays. The detail of who owes what is held in the debtors subledger, which reconciles to a single accounts receivable control account in the general ledger.
Where it fits in
Payroll has no direct receivable, but the cash a business collects from its debtors is what ultimately funds the wage bill. An employee who owes the business money - say a salary advance to be recovered - is a receivable until repaid.
Key rules
- Amounts owed by customers for goods or services delivered.
- A current asset, normally collected within twelve months.
- Detail sits in the debtors subledger; the total in a control account.
- Debited when the receivable is raised, credited when collected.
