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Accounts Receivable: Definition and Meaning
Definition
Accounts receivable is money owed to a business by customers for products delivered or services performed but not yet paid for.
Why It Matters
Accounts receivable affects cash flow, liquidity, and working capital. A company can report revenue and profit while still experiencing cash pressure if customers do not pay on time. Reviewing receivables by customer, invoice date, and aging category helps management identify collection issues early.
For construction companies, receivables may include progress billings, approved change orders, retainage, and disputed amounts. Clear billing practices and regular follow-up can support healthier cash flow.
Example
A company completes work and invoices a client $8,000 with payment due in 30 days. Until payment arrives, the $8,000 is recorded as accounts receivable.
Related Terms
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