The balance of money due to a firm for goods or services that have not yet been paid for by customers is called accounts receivable (AR). On the balance sheet, accounts receivable are listed as a current asset. AR represents any amount owed by customers for purchases made on credit.
A company's accounts receivable represent the outstanding invoices it has or the money its customers owe it. In accounting terms, the phrase is used to describe accounts that a business may receive as a result of delivering a product. Accounts receivable, or receivables, represent credit lines extended by companies, usually with payment terms that require payments to be made within a short period of time. It can be as short as a few days or as long as a fiscal or calendar year.
Due to a legal obligation for customers to pay the debt, companies record accounts receivable as assets on their balance sheets. In addition, accounts receivable are current assets, meaning the debtor must pay the account balance within a year or less. Receivables are the results of a sale made on credit and the money yet to be collected. The client has essentially issued the company a short-term IOU.