Accounts Receivable
Accounts receivable (AR) is money that customers owe your business for products or services you've already delivered. It's the flip side of accounts payable — instead of you owing someone, someone owes you. AR is an asset on your balance sheet because it represents future cash coming in.
Accounts Receivable Definition
Accounts receivable (AR) is money that customers owe your business for products or services you've already delivered. It's the flip side of accounts payable — instead of you owing someone, someone owes you. AR is an asset on your balance sheet because it represents future cash coming in.
Accounts Receivable in Practice — Example
You run a freelance graphic design studio and complete a $5,000 branding project for a client on April 1st. Your invoice says "Net 30," meaning the client has 30 days to pay. From April 1st through April 30th, that $5,000 is accounts receivable. It shows up on your balance sheet as an asset and on your P&L as revenue (if you're on accrual basis). Once the client pays, AR decreases and your cash increases.
Why Accounts Receivable Matters for Your Books
AR is how you track who owes you money and when it's due. Without clean AR records, you lose track of outstanding invoices, which means lost revenue. Studies show small businesses are owed an average of $84,000 in unpaid invoices at any given time. That's real money sitting on the table.
Your AR balance also directly impacts cash flow. You can be "profitable" on paper with $100K in revenue but broke if none of your clients have actually paid. Monitoring AR aging (how long invoices have been outstanding) helps you identify slow-paying clients early and follow up before it becomes a collections issue.
For accrual-basis businesses, AR is especially critical because revenue gets recognized when earned, not when collected. That means your tax liability can be based on money you haven't even received yet — making AR management essential for tax planning.
How Accounts Receivable Shows Up in QuickBooks
In QBO, AR is tracked automatically when you create invoices (Sales → Invoices). Check your AR balance under Reports → Balance Sheet as a current asset. Run the Accounts Receivable Aging Summary report to see outstanding invoices by customer and how overdue they are. When a customer pays, record it via Receive Payment to clear the invoice from AR.
Common Mistakes
FAQ
Q: How long should I let an invoice sit before following up? A: Follow up at the due date, then at 15 days overdue, then 30. After 90 days, consider it a collections issue and evaluate writing it off as bad debt.
Q: Does accounts receivable count as income? A: On accrual basis, yes — revenue is recognized when earned, regardless of payment. On cash basis, it's not income until the cash hits your account.
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