What is meant by “accounts receivable”?

Accounts receivable refers to the money that is owed to a company by its customers for goods or services that have been delivered but not yet paid for. This financial concept is critical for businesses, as it represents a claim for payment which can be converted to cash in the future. Accounts receivable are recorded as current assets on the balance sheet, indicating that they are expected to be received within a year. A healthy accounts receivable balance is essential for maintaining liquidity and ensuring that the company can cover its short-term liabilities. In contrast, investments, expenses, and goods purchased on credit do not directly involve customer payment obligations that the company expects to collect in the near term.