WHAT IS A/R IN FINANCIAL BUSINESS PLAN? ACCOUNT RECEIVABLE

What is AR in financial business plan? It is account receivable. That's the very simple answer.  Did you know the meaning before? If no, then you should know that it is very much needed in every business plan and financial modelling. Every accountant should know that for him/her to get a correct cash flow analysis, the accounts receivable must be know. It is also very important to note when the AR increases and also when the AR decreases.


By DEFINITION of 'Accounts Receivable - AR'

Account receivable is the money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. Receivables usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from a few days to a year of running the business.

You should be aware that on a public company's balance sheet, accounts receivable (AR) is often recorded as an asset because this represents a legal obligation for the customer to remit cash for its short-term debts

See how INVESTOPEDIA EXPLAINS 'Accounts Receivable - AR' for better understanding

Note 1 - If a company has receivables, this means it has made a sale but has yet to collect the money from the purchaser. Most companies operate by allowing some portion of their sales to be on credit. These type of sales are usually made to frequent or special customers who are invoiced periodically, and allows them to avoid the hassle of physically making payments as each transaction occurs. In other words, this is when a customer gives a company an IOU for goods or services already received or rendered.

Note 2 - Accounts receivable are not limited to businesses - individuals have them as well. People get receivables from their employers in the form of a monthly or bi-weekly paycheck. They are legally owed this money for services (work) already provided.

When a company owes debts to its suppliers or other parties, these are known as accounts payable.

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