Assets & Liabilities
Accounts Receivable
Money customers owe you for goods or services you've delivered but haven't been paid for yet.
Accounts receivable (AR) is a current asset: the legal right to collect cash in the future. Under accrual accounting you record revenue and the receivable at the moment the sale happens on credit, so the P&L reflects the sale even though your bank account hasn't moved.
AR is an asset only if it converts to cash. Every invoice past due is a claim you haven't collected, and every claim you'll never collect must be written off against a contra account or bad-debt expense. That's why the AR aging report — how much is current, 30, 60, 90+ days late — is one of the first things investors and lenders look at. Rising revenue with rising aging means you're booking sales you may not be converting into money.
Example
You invoice a client $10,000 on June 1, net-30. In June you record $10,000 of revenue and $10,000 in accounts receivable. They pay on June 28: AR drops to zero, cash rises $10,000. If they never pay, you eventually write the $10,000 off as bad-debt expense.
Common questions
Why can't I spend my accounts receivable?
Because it isn't money yet — it's a promise. AR pays your bank account only when customers actually pay. Startups that scale revenue on net-60 enterprise terms can be technically profitable and still run out of cash waiting on receivables.
What is an AR aging report?
A breakdown of unpaid customer invoices by how overdue they are: current, 1–30, 31–60, 61–90, 90+ days. It shows which receivables are likely to convert to cash and which are heading toward a write-off. Reviewing it is a standard step in every month-end close.
Practice this in the game
Accrual World turns concepts like these into playable drills. Pick the account, pick debit or credit, and get instant feedback. Free, no signup.
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