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.