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Simple English definitions for legal terms
accounts receivable
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A quick definition of accounts receivable:
Accounts receivable (also known as A/R) is money that a business is owed by another business or person for goods or services that were provided on credit. This means that the customer did not pay right away, but instead agreed to pay at a later time. The business keeps track of these owed payments in their books as accounts receivable. Once the customer pays the full amount owed, the accounts receivable is replaced with cash.
A more thorough explanation:
Definition: Accounts receivable (A/R) is the money that a business is owed by another business or individual for goods or services provided on credit. When a business sends an invoice to a customer, it creates an accounts receivable. This is recorded as a current asset on the business's balance sheet.
Example: A restaurant supply shop sells $10,000 worth of equipment to a restaurant on credit. As soon as the equipment is delivered to the restaurant, the business records an accounts receivable on its books. Once the restaurant makes the full payment (in whatever time frame set out under the terms of the agreement), the accounts receivable is essentially replaced with cash.
Legal Example: In the case of United States v. Berg, accounts receivables were used in a legal setting. The defendant was accused of fraudulently inflating the accounts receivable of his business to obtain a loan. This case illustrates the importance of accurately recording accounts receivable and the consequences of fraudulent behavior.
Overall, accounts receivable is an important aspect of a business's financial health. It represents money that is owed to the business and can impact cash flow and profitability.