ACCOUNT RECEIVABLE Meaning and
Definition
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An account receivable is a financial term that refers to the amount of money owed to a business or individual by its customers or clients for goods or services provided on credit. It represents the outstanding payments that are due and expected to be received by the company in the near future.
When a business engages in transactions involving credit terms, it generates a receivable. These receivables are recorded on the company's balance sheet as an asset and are classified as a current asset since they are typically expected to be collected within one year. The amount indicated in the account receivable includes the original invoice amount, any accrued interest, and any additional fees associated with late payment or non-payment.
Managing accounts receivable is crucial for businesses as it directly affects their cash flow and profitability. Companies often establish specific terms and conditions for credit sales, including the agreed payment period. After the completion of a sale or service, an invoice is issued to the customer, specifying the amount owed and the due date. Businesses must also monitor accounts receivable aging, which helps track the time until payment is received.
To improve cash flow, companies can take various actions such as offering discounts for early payment or using collection strategies to follow up on overdue receivables. Additionally, some businesses may choose to sell their accounts receivable to a third-party company known as a factoring company, which provides immediate cash but at a discounted price.
Common Misspellings for ACCOUNT RECEIVABLE
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Etymology of ACCOUNT RECEIVABLE
The term "accounts receivable" has its etymology rooted in accounting and finance.
The word "account" originates from the Latin word "computare", meaning "to reckon or calculate". In medieval Latin, the term "computare" was used to refer to the process of calculating or evaluating financial transactions.
The term "receivable" is derived from the Old French word "recevable", which means "capable of being received". In accounting, it refers to the amount of money owed to a company by its customers or clients for goods sold or services rendered.
Combining these two terms, "account receivable" refers to the outstanding balances or amounts that customers owe to a business or entity through credit transactions.
Similar spelling words for ACCOUNT RECEIVABLE
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