Accounts Receivable, What Is It?

Accounts receivable is one of a series of accounting transactions dealing with the billing of customers which owe money to a person, company or organization for goods and services that have been provided to the customer. This is typically done in a one person organization by writing an invoice and mailing or delivering it to each customer.

On an organization's balance sheet, accounts receivable is the amount that customers owe to the business. Also known as AR, they are classified as current assets. To record a journal entry for a sale on account, you must debit a receivable and credit a revenue account. When the customer pays off the account, you debit cash and credit the receivable in the journal entry. The ending balance on the trial balance sheet for accounts receivable is always debit.

Companies that have become much too large to perform this task by hand will generally use accounting software like Quick Books to preform this task.

Associated accounting issues include recognizing accounts receivable, valuing accounts receivable, and disposing of accounts receivable.

There are many types of accounting transactions like accounts payable (AP), payroll and trial balance.

Since not all customer debts will be collected by the AR department, companies typically record an allowance for bad debts which is subtracted from total accounts receivable. When accounts receivable are not paid, some companies turn them over to collection agencies. However, many debtors just won't pay the AR; in those cases, smart creditors turn to a collection agency.

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