What does accounts receivable represent for a company?

What does accounts receivable represent for a company?

• A. Money owed by customers for unpaid services or products
• B. Cash reserves for immediate use
• C. Short-term investments held by the company
• D. Payroll expenses due to employees

Answer: (A)

Accounts receivable signifies the amount of money that customers owe to a company for goods or services that have already been delivered but not yet paid for. This figure is an essential part of a company's balance sheet and represents a claim for payment. When a company sells products on credit, it records the transaction as an increase in accounts receivable, indicating that the business expects to receive payment in the future. This is a standard practice in many industries, allowing companies to boost sales by providing customers with the flexibility to pay later. In contrast, cash reserves pertain to liquid assets that are readily available for immediate expenses or investments, while short-term investments are financial assets with a maturity period of less than a year, which do not relate to customer debts. Payroll expenses involve liabilities to employees for work performed, and do not reflect money owed by customers for purchases. Therefore, understanding accounts receivable is crucial, as it directly impacts a company's cash flow and overall financial health.

Accounts receivable signifies the amount of money that customers owe to a company for goods or services that have already been delivered but not yet paid for. This figure is an essential part of a company's balance sheet and represents a claim for payment. When a company sells products on credit, it records the transaction as an increase in accounts receivable, indicating that the business expects to receive payment in the future. This is a standard practice in many industries, allowing companies to boost sales by providing customers with the flexibility to pay later.

In contrast, cash reserves pertain to liquid assets that are readily available for immediate expenses or investments, while short-term investments are financial assets with a maturity period of less than a year, which do not relate to customer debts. Payroll expenses involve liabilities to employees for work performed, and do not reflect money owed by customers for purchases. Therefore, understanding accounts receivable is crucial, as it directly impacts a company's cash flow and overall financial health.