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Accounts Receivable for Dummies

noun


What does Accounts Receivable really mean?

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Accounts Receivable is a term that we often hear in the business world, but what does it really mean? Well, let's break it down together. Think about it this way. Imagine you have a lemonade stand, and you sell lemonade to people in your neighborhood. Whenever someone buys a glass of lemonade, they owe you money, right? That money that people owe you is called accounts receivable.

You see, accounts receivable refers to the money that a company or a person is supposed to receive from their customers. It's like keeping track of all the people who owe you money and how much they owe. Just like you keep a record of the people who still need to pay you for that refreshing glass of lemonade.

Now, let's go a little deeper and understand why businesses keep track of accounts receivable. Imagine you start a small business selling handmade bracelets. You sell your bracelets to different customers, and they promise to pay you back later, rather than right away. You may not have enough money to make more bracelets or buy the materials you need if you don't get the money that people owe you, right?

That's where accounts receivable comes into play. By keeping track of accounts receivable, businesses can have a clear picture of who owes them money and how much. This helps them manage their cash flow and make important decisions. It's like having a list of all your friends who still need to give you money for their share of a pizza you ordered.

Now, remember when I mentioned there could be more than one definition for accounts receivable? Well, besides representing the money that people owe you, it can also refer to a specific account on a company's balance sheet. This account keeps track of all the outstanding invoices or bills that are waiting to be paid by customers. It's like having a special notebook where you write down all the money people owe you for the lemonade they bought.

So, in a nutshell, accounts receivable means keeping track of the money that customers owe to a business or a person. It's like having a list of all the IOUs, or money promises, you have from people who bought your products or services. Just like that, we've demystified the term accounts receivable and made it easy to understand!

Revised and Fact checked by Brian Anderson on 2023-11-06 02:46:46

Accounts Receivable In a sentece

Learn how to use Accounts Receivable inside a sentece

  • When a customer buys a toy from the store but doesn't have the money to pay for it right away, that toy becomes an accounts receivable for the store.
  • If a company delivers furniture to a customer's house and sends them an invoice to pay for it later, that unpaid amount becomes an accounts receivable for the company.
  • Imagine a bakery that sells cakes to people on credit. The money that the bakery is owed by different customers is its accounts receivable.
  • A clothing store often allows customers to buy clothes and pay for them at a later date. The money that the store is expecting to receive from those customers is its accounts receivable.
  • A mechanic fixes cars for people and lets them pay for the repairs over time. The amount of money owed by the customers for those repairs is the mechanic's accounts receivable.

Accounts Receivable Hypernyms

Words that are more generic than the original word.

Accounts Receivable Usage Of

Words that the original word is a domain usage of.