Accounts receivable are amounts owed to a business from selling products or services to its customers. If a customer buys a product or service and does not immediately pay cash, the company will record an account receivable for the amount owed.
For example, a shoe manufacturer sells $50,000 of inventory to a local shoe store. The shoe manufacturer delivers the inventory to the customer’s storefront. The manufacturer hands the shoe store an invoice stating that the $50,000 is payable within 30 days, with early payment terms 1/10 net 30.
The company records a $50,000 accounts receivable on its financial statements. When the customer pays the invoice, the company applies the payment to the customer’s outstanding AR balance.