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Understanding the concept of ‘Accounts Receivable – AR’

In simple terms, it is part of the accounting system that records any products or services that has been delivered or used by the customers (individuals or corporations) but not yet paid to the company.

Depending on the company’s practice which is also based on the industry standards, Companies can deem the receivables as lines of credit or one-time payment from their customers.

Account receivables are part of the sales ledger which is normally records by the account department that includes the sales which the company has made, the amount of money received for goods or services and the amount of money which is owed by the customers.

As long as the payment for the good and services is not paid or paid partially, it will be deeming as the term “Account receivable” to the company and “Account payable” to the customer.

Another good example is a when an employee is hired by the company to do a specific task of work as agreed in the contractual term mentioned in the employment contract.
The individual will perform his or her duties first and will be paid the “receivables” also known as paycheck or salary in common terms.

Companies will constantly monitor it’s account receivable and follow up with customers which has not paid the agreed amount if not it will go to bad debt and will be considered as Loss to the company’s balance sheet.

Thus, account receivable management is crucial factor and knowledge that companies will need to learn and adapt. In order to ensure a good cash flow and minimum bad debt to the company’s balance sheet.