Legal Definitions - account receivable

Accounts receivable (often abbreviated as A/R) refers to the money that a business is owed by its customers for goods or services that have already been delivered or performed, but for which payment has not yet been received. Essentially, it represents credit extended by a business to its clients, with the expectation of payment in the near future. For the business that is owed the money, accounts receivable is considered an asset because it represents a future inflow of cash.

• Imagine a graphic design studio completes a new logo and branding package for a startup company. The design studio sends an invoice for $5,000, with payment due in 30 days. From the moment the work is delivered and the invoice is issued, the graphic design studio records $5,000 as accounts receivable. This means the startup owes them money for services already rendered, and the studio expects to receive that cash within the agreed timeframe.

• Consider a dental clinic that performs a root canal for a patient. The clinic bills the patient's insurance company directly for the procedure. Until the insurance company processes the claim and sends payment, the amount due from the insurance company is recorded as accounts receivable by the dental clinic. This reflects the clinic's right to receive payment for the dental services it has already provided.

• A cloud software provider offers a yearly subscription to its project management tool to a large corporation. The corporation agrees to pay the annual fee of $12,000 within 60 days of the service activation. Once the software access is granted and the invoice is sent, the software provider records $12,000 as accounts receivable. This signifies the money owed to them by the corporation for the software license that has already been made available.