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The Corporate Finance Institute Accounting
Assets
Accounts Receivable
To learn more, please Accounts Receivable (A/R) represents the credit sales of a
check out our free online business, which have not yet fully been paid by its customers.
accounting courses
Companies allow their clients to pay at a reasonable, extended period of
time, provided that the terms are agreed upon. For certain transactions,
View courses a customer may receive a discount for paying the receivable back to the
company early.
The average A/R days assumption is an important part of forecasting
changes in non-cash working capital in financial modeling.
Why use Accounts Receivables instead of Cash?
Some businesses allow selling on credit to make the payment process
easier. Take for example, a phone provider. This provider may find it
hard to collect payment perpetually every time someone makes a call.
Instead, the provider will be periodically invoiced at the end of the
month for the total amount of service used by the customer. Until this
monthly invoice has been paid, the amount will be recorded in account
receivables.
Allowing purchase on credit also encourages more sales. Customers
tend to hold on to cash, but are more inclined to purchase on credit if
possible.
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