Accounts Receivable Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Accounts Receivable, written in plain English, along with examples of how it is used.

What is Accounts Receivable?

n. accounting transactions related to cutomers’ bills, of the money they owe to a person, company or organization for goods and services that have been provided to them. eg. writing and delivering of invoice to each customer. In [balance sheets](, the [accounts receivable](, is the amount that customers owe a business. Also called as trade receivables.

History and Meaning of Accounts Receivable

Accounts Receivable is one of the most important aspects of accounting for any business. It refers to the amount of money which is owed by customers to a company or an individual for goods or services that have been sold or provided on credit. In other words, it is the outstanding bill a company has to receive from its customers.

To understand the history of Accounts Receivable, it is important to look at the development of accounting itself, which began over 7,000 years ago in ancient Mesopotamia. The practice of accounting has evolved over time, and today, Accounts Receivable is an essential aspect of modern accounting. It provides a way for a business to keep track of its customers' debt and improve their cash flow management.

Examples of Accounts Receivable

Here are a few examples of how Accounts Receivable can be used in different contexts:

  1. A clothing store sells $1,000 worth of merchandise to a customer on credit. The amount the customer owes the store is considered Accounts Receivable.

  2. A medical clinic provides a patient with treatment and sends a bill for $500. Until the patient pays the bill, the amount owed is considered Accounts Receivable.

  3. A construction company invoices a client for services provided, totaling $5,000. Until the client pays the invoice, the amount owed is considered Accounts Receivable.

Legal Terms Similar to Accounts Receivable

Here are a few legal terms that are similar to Accounts Receivable:

  1. Trade Receivables: This is another term for Accounts Receivable, referring to the money owed by customers for goods sold or services rendered.

  2. Financial Statements: A document that shows the financial status of a business, including the book value of Accounts Receivable.

  3. Credit Sale: This refers to a sale where payment is not made at the time of the sale, but rather on a specified future date when the invoice is due.