What are Accounts Receivable?
Accounts Receivable is money owed to the company by its customers for a service or product already delivered.
Companies typically do business with other companies on credit instead of demanding payment immediately. Typically Accounts Receivable is converted into cash within 1 year, for this reason Accounts Receivable is considered a Current Asset.
Example below from Intel’s (INTC) 2012 2nd quarter earnings.
(Click to Enlarge)
Accounts Receivable is used in many calculations to determine a company’s ability to pay its bills on time. Some examples include:
Interpretation of Financial Statements, Defines Accounts Receivable as:
“Money which is due to the company for goods or services sold. Certain kinds of receivables may be relatively noncurrent – for example amounts due from officers and employees, including stock subscriptions. If such accounts are not due to be received by the company within a year, they are usually shown separately from the current assets.”
“When the enterprise ships a product to a customer on credit, the enterprise acquires a right to collect money from that customer at a specified time in the future.
These collection rights are totaled and reported on the balance sheet as accounts receivable.
Accounts receivable are owed to the enterprise from customers (called “accounts”) who were shipped goods but have not yet paid for them. Credit customers-most businesses between companies is done on credit-are commonly given payment terms that allow 30 or 60 days to pay.”
[ois skin=”Bottom of Pages”]