Learn what is accounts receivable in accounting, how it impacts cash flow and financial statements, and how Quick Receivable helps you manage it efficiently.
Shyam Agarwal 
Accounts receivable is an important component for the financial health of a business. For companies who are trying to stay financially flexible, understanding what is accounts receivable in accounting just goes beyond the money owed by customers. In the US, over half of the B2B invoices were overdue in the last year, with SMBs facing an average bad debt of 8% of credit sales.
Properly managing accounts receivable allows businesses to maintain their liquidity, plan expenses, and lessen the financial risks. In this blog, we’ll explore what is accounts receivable in accounting, recording, tracking, and best practices.
Accounts Receivable (AR) is the money a business is owed by its customers for either services or goods sold on credit. Think of it as a short-term debt that the customer has to pay to your business. Understanding what is accounts receivable in accounting is important because it shows how much capital a business is expecting soon.
In accounting, AR is important because of the accrual principle: a company records revenue when they earn it, not when the money is received. This goes a long way in showing an accurate picture of a business’s finance. Accounts Receivable are usually noted as a current asset on the balance sheet because it is money that is expected to be paid within a financial year.
Accrual Principle: An accounting concept that requires transactions to be recorded in the time in which they occur, regardless of when the actual cash flows for the transaction are received.
Tracking accounts receivable properly is very important for understanding a company’s cash flow and preparing correct financial reports. The process follows the double-entry bookkeeping system.
When your business sells goods or services on credit, it creates an AR entry and recognizes revenue at the same time.
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | $$$ | |
| Sales Revenue | $$$ |
This step makes sure that even though the cash has not been received yet, the income is accurately reported.
When the customer pays, the AR balance is reduced:
| Account | Debit | Credit |
|---|---|---|
| Cash | $$$ | |
| Accounts Receivable | $$$ |
This keeps the records clean and correct, showing that the receivable has been collected.
One of the best tools to use when managing accounts receivable in accounting is the AR Aging Schedule. It organizes all of the unpaid invoices based on how long they have been outstanding, like:
This system helps in identifying which invoices are risky and will not be paid going forward. In fact, once an invoice goes 90 days past its due date, only up to 18% of those invoices are paid.
The state of accounts receivable in accounting affects all three main financial statements. On the balance sheet, AR gets listed as Current Asset, showing the money the company expects to be paid soon. Companies also set aside a sum of capital as an Allowance for Doubtful Accounts to estimate potential bad debts, so the net amount reported (Net Realizable Value) reflects what can be realistically collected.
On the income statement front, credit sales increase revenue when recorded. However, if some receivables are not collected, the loss is recorded as Bad Debt Expense, which lowers profitability.
With cash flow statement, AR shows the difference between recorded revenue and actual cash received. If AR increases, it is subtracted from net income because more revenue was recorded than cash collected. If AR decreases, it is added back to net income, showing that the company collected cash from prior sales.
To manage accounts receivable in accounting properly, businesses should follow a few key practices:
Yes. Using solutions like Quick Receivable automates tracking, reminders, and reports, helping businesses reduce delays and improve accuracy.
Understanding what is accounts receivable in accounting is about managing the company’s cash lifeline. Strong AR practices help businesses keep their finances healthy, reduce late payments, and maintain steady growth.
If your business still struggles with tracking invoices or chasing payments, it is time to simplify the process. Quick Receivable helps you automate reminders, monitor balances, and get paid faster. Contact our team today!
Whether you're looking to streamline invoicing, set up secure online payments, or need a custom made payment solution, our team is always ready to help you move faster, safer, and smarter with QuickPayable.
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