Accounts receivable

Accounts receivable (AR) is the total amount your customers owe you for goods or services you have already delivered or invoiced but not yet been paid for. It is recorded as a current asset on the balance sheet, because it represents cash you expect to collect.

On accrual-basis books, revenue is recorded when you invoice (earn) it — which creates the receivable — and the receivable clears when the customer pays. AR is tracked per customer and per invoice, and grouped by how overdue it is in an “aging” report.

A growing or aging accounts-receivable balance is one of the earliest signals of a cash problem: the business is profitable on paper but the money is stuck in unpaid invoices. The AR aging report — current, 1–30, 31–60, 61–90, 90+ days — tells you exactly which customers are slow and how much cash is tied up.

Accurate AR depends on accurate books: if invoices and payments aren’t recorded and matched correctly, the aging report lies. That’s why AR clean-up — matching payments to invoices, writing off truly uncollectible balances — is a common part of a cleanup.

AR lives in two places at once, and that is the source of nearly every AR problem we are called about. The aging report is a sub-ledger built from open invoices, customer by customer. The balance sheet carries a single Accounts Receivable control account. In a healthy file those two agree to the penny on every close date. When they do not, one of them is lying and it is usually not the bank.

The check takes a minute: run the A/R Aging Summary as of the last day of the period, run the Balance Sheet as of the same date, and compare the aging total to the Accounts Receivable line. Same date, both reports on the same basis — accrual, not cash, because on a cash basis AR should be zero and a non-zero balance is itself the finding.

They are mirror images. Accounts receivable is money owed to you (an asset). Accounts payable is money you owe others (a liability). One customer’s receivable is its vendor’s payable.