Accounts receivable (AR) represents money customers owe the business. When a restaurant caters a corporate lunch and sends an invoice due in 30 days, the invoice amount is accounts receivable from the moment of delivery until the moment of payment. AR appears as a current asset on the balance sheet — it is money the business has earned but not yet collected.
AR creates a gap between revenue recognition and cash receipt. The income statement records the revenue when earned (under accrual bookkeeping), but the cash flow statement shows that cash hasn’t arrived yet. A business with high AR and low cash is profitable on paper but may struggle to pay its bills.
Managing AR means invoicing promptly, setting clear payment terms, following up on overdue accounts, and — for significant orders — requiring deposits up front. See Small Business Bookkeeping for AR management practices.