Accounts receivable is the money owed to an entity by its customers for goods or services delivered but not yet paid for.
It’s an asset — the entity has a legal right to collect. On the balance sheet, accounts receivable sits under current assets because the expectation is that customers will pay within a short period, typically 30 to 90 days. Under accrual accounting, revenue is recorded when earned (when the service is performed or goods delivered), not when payment arrives. Accounts receivable bridges this gap: it captures the timing difference between earning revenue and receiving cash.
Not all receivables get collected. Some customers default, and a business that ignores this reality overstates its assets. That’s why entities maintain an allowance for doubtful accounts — a contra-asset that reduces the reported receivable balance to reflect the amount the entity actually expects to collect. Estimating this allowance requires judgment and typically draws on historical collection rates and current economic conditions [citation needed].
Related terms
- Account — the general category that accounts receivable belongs to.
- Accrual accounting — the method that creates the timing gap accounts receivable represents.
- Accounts payable — the mirror image: money the entity owes to others.