Recent Examples of account receivable from the Web
The $50 million price includes around $22.5 million of working capital, which mainly comprises accounts receivable, as Taptica looks to maintain Tremor Video’s relationships with advertising agencies and marketers.
Failures of internal accounting controls caused financial statements to understate accounts receivable by at least $302,740 and understate accounts payable by at least $493,794.
These example sentences are selected automatically from various online news sources to reflect current usage of the word 'account receivable.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.
First Known Use of account receivable
Financial Definition of ACCOUNT RECEIVABLE
What It Is
Accounts receivable (A/R) are amounts owed by customers for goods and services a company allowed the customer to purchase on credit.
How It Works
Let's assume that Company XYZ sells $1 million of widget parts to a widget manufacturer and gives that customer 60 days to pay for those parts. Once Company XYZ receives the order and/or sends the parts and/or sends the customer an invoice, it will decrease its inventory account by $1 million and increase its accounts receivable by $1 million. When 60 days has passed and Company XYZ is paid, it will increase cash by $1 million and reduce its accounts receivable by $1 million.
When accounts receivable go down, this is considered a source of cash on the company's cash flow statement, and as such, it increases the company's working capital (defined as current assets minus current liabilities). When accounts receivable goes up, this is considered a use of cash on the company's cash flow statement because the company is "stretching out" the time it takes to receive money owed to it and thus is using cash more quickly.
Why It Matters
Accounts receivable is an important factor in a company's working capital. If it's too high, the company may be lax in collecting what's owed too it and may soon be struggling to find the cash to pay the bills; if it's too low, the company may be unwisely harming customer relationships or not offering competitive payment terms. In general, accounts receivable leciels correspond to changes in sales levels.
Companies can sometimes use their receivables as collateral for borrowing money. The level of accounts receivable also affects several important financial-performance measures, including working capital, days payable, the current ratio and others.
It is important to note that uncollectible receivables do not qualify as assets (these uncollectible amounts are reclassified to the allowance for doubtful accounts, which is essentially a reduction in receivables); thus, companies usually allow only creditworthy customers to pay days, weeks or even months after they've received the company's services or goods. Sometimes companies sell their receivables for cents on the dollar to other companies that focus solely on collecting the owed amounts.
legal Definition of account receivable
Learn More about account receivable
Britannica.com: Encyclopedia article about account receivable
Seen and Heard
What made you want to look up account receivable? Please tell us where you read or heard it (including the quote, if possible).