Definition and Examples of
Accounts Receivable (A/R)
Expanded Explanation: Accounts Receivable represent the credit sales of a business that have not yet been collected from customers. This is a critical part of managing cash flow, as it involves the timing of revenue recognition and cash collection. Efficient management of accounts receivable ensures a steady flow of cash into the business, which is necessary for covering expenses and investing in growth opportunities.
Potential Issues: Poor management of accounts receivable can lead to cash flow problems. If customers delay payments or default, your business might struggle to pay its own bills, leading to a potential liquidity crisis.
Example: If your small bakery supplies cakes to a local café on credit, the amount owed by the café until they pay is your accounts receivable.