Account receivable is an account in a company’s general ledger that represents the amount of money that the company is owed by its customers or clients for goods or services that have been provided but not yet paid for.
An example of accounts receivable includes an electric company that bills its clients after the clients received the electricity. The electric company records an account receivable for unpaid invoices as it waits for its customers to pay their bills.
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When a company sells goods or services on credit, it creates an accounts receivable entry in its accounting system. The company records the sale as revenue in the accounting period in which it is made but does not record a cash inflow until the payment is received. Instead, the accounts receivable balance is increased to reflect the amount owed by the customer.
Once the payment is received, the accounts receivable balance is reduced by the amount received.
