Accounts Receivable Explained

The definition
Why it's an asset

Accounts receivable (AR) is the money customers owe your business for goods or services you've already provided on credit, for example when you've sent an invoice with payment terms and it hasn't been paid yet. It's recorded as an asset, because it's cash you expect to collect. When the customer pays, the receivable is replaced by cash. The definitions on this page are quoted from the open textbook Principles of Accounting, Volume 1 from OpenStax.

The definition

OpenStax defines accounts receivable as an "outstanding customer debt on a credit sale, typically receivable within a short time period" (OpenStax, chapter 9 key terms, opened October 30, 2026).

Its section 9.1 adds: "A receivable is an outstanding amount owed from a customer. One specific receivable type is called accounts receivable." It explains when the money is expected: "The company expects to receive payment on accounts receivable within the company’s operating period (less than a year)."

Why it's an asset

OpenStax says: "Accounts receivable is considered an asset, and it typically does not include an interest payment from the customer." It also describes the link to invoicing: "Some view this account as extending a line of credit to a customer. The customer would then be sent an invoice with credit payment terms." For the terms themselves, see what is Net 30.

How a sale on credit is recorded

OpenStax (section 9.1) describes the entries:

When you make the sale: "Accounts Receivable increases (debit) and Sales Revenue increases (credit)". It explains: "Accounts Receivable recognizes the amount owed from the customer, but not yet paid."
When the customer pays: "Cash increases (debit) and Accounts Receivable decreases (credit) for the full amount owed."
When they pay part of it: "If the customer made only a partial payment, the entry would reflect the amount of the payment."

Recording revenue when it's earned, rather than when cash arrives, is part of accrual accounting. See what is accrual accounting.

When a receivable isn't paid

Some receivables aren't collected. OpenStax defines bad debts as "uncollectible amounts from customer accounts", and the allowance for doubtful accounts as a "contra asset account that is specifically contrary to accounts receivable; it is used to estimate bad debt when the specific customer is unknown." See bad debt in business.

Where to go next

This page covers what accounts receivable is. For managing and collecting it, see:

What is accounts receivable management
How to track invoices effectively, including grouping unpaid invoices by age
What is accounts receivable turnover, for measuring how quickly receivables are collected

Sample: one invoice from sale to payment

This is a sample with invented figures. A consultant invoices a client $1,500.00 on Net 30 terms after finishing the work. The client pays $1,000.00, then the remaining $500.00.

Invoice sent: debit Accounts Receivable $1,500.00; credit Sales Revenue $1,500.00. Debits $1,500.00 = credits $1,500.00. Accounts receivable: $1,500.00.
First payment: debit Cash $1,000.00; credit Accounts Receivable $1,000.00. Debits = credits. Accounts receivable: $1,500.00 − $1,000.00 = $500.00.
Second payment: debit Cash $500.00; credit Accounts Receivable $500.00. Debits = credits. Accounts receivable: $500.00 − $500.00 = $0.00.

Cash received in total: $1,000.00 + $500.00 = $1,500.00, the full invoice. See how to handle partial payments.

Where Billed fits

Billed's financial reporting page says: "See your partially paid, past due and paid invoices in a glance with Invoice reports." Its client management page says you can "Keep a comprehensive record of all payments in one place, easily track payment history, stay informed about outstanding balances, and send payment reminders using Billed client management."

Frequently Asked Questions

Is accounts receivable an asset or a liability?

An asset. OpenStax says: "Accounts receivable is considered an asset, and it typically does not include an interest payment from the customer."

What is the difference between a receivable and accounts receivable?

OpenStax says: "A receivable is an outstanding amount owed from a customer. One specific receivable type is called accounts receivable."

How do you record accounts receivable?

When you make the sale on credit, accounts receivable increases with a debit and sales revenue increases with a credit. When the customer pays, cash increases with a debit and accounts receivable decreases with a credit. In the sample on this page, a $1,500.00 invoice paid in two parts brings accounts receivable back to $0.00.

What happens when a receivable can't be collected?

OpenStax defines bad debts as "uncollectible amounts from customer accounts". OpenStax's chapter 9 describes how they're estimated and recorded.

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