Accounts receivable (abbreviated AR or A/R) is an accounting term, which refers to the money owed to a business by another business or individual in exchange for property or services that were provided on credit. In other words, accounts receivable stands for the money that have not been paid to a business. This is because when offering services or selling goods, a business could allow its customer to defer payment. In a business’s balance sheet or general ledger, accounts receivable is typically under the category of current assets because they offer value. Yet, accounts receivable may not qualify as a revenue. The settlement of an account receivable begins by sending an invoice to the customer.
For example, a restaurant supply shop sells $10,000 worth of equipment to a restaurant on credit. As soon as the equipment is delivered to the restaurant the business records an account receivable on its books. Once the restaurant makes the full payment (in whatever time frame set out under the terms of the agreement) the accounts receivable is essentially replaced with cash. The case of United States v. Berg is an example of accounts receivables used in a legal setting.
See also account; accounts payable
[Last reviewed in February of 2025 by the Wex Definitions Team]