What is accounts receivable?

By Book Keeping Pros
Sources checked 15 Oct 2026

Definition

Accounts receivable is the money customers owe a business for goods or services it has delivered and invoiced but has not yet been paid for. Each unpaid invoice stays in accounts receivable until the customer pays, it is credited or it is written off, and the total is shown as a current asset on the balance sheet.

Tracking accounts receivable shows which invoices are overdue, so the business can follow up with customers before late payments strain its cash flow. In accrual books the sale is usually recorded as income on the invoice date, and the same amount is added to accounts receivable. When the customer pays, the receivable is cleared and the bank balance rises, so a sale can show up in profit weeks before its cash arrives.

A list of unpaid invoices sorted by how long they have been outstanding, often called aged receivables, makes the oldest debts easy to see. An invoice that is paid but not matched to the customer's payment can still look overdue, so payments are matched as they arrive.

Accounts receivable is the business's own money sitting with its customers, so the size of the balance matters as much as its age. A balance that keeps growing while sales stay steady can mean customers are taking longer to pay, while one that rises with sales may simply reflect a busy month. Comparing the total each month with the payment terms on your invoices, and with your own past results, can flag whether collection is slipping. An invoice that looks unlikely to be paid is worth raising with your accountant rather than leaving in the total.

In Australia

business.gov.au lists end-of-year records, including a list of debtors (the people and businesses that owe you money), among the records a business needs to keep.

Its guide to managing cash flow suggests sending an invoice as soon as you make a sale, setting clear payment terms, such as payment up front or within 30 days, and following up customers who haven't paid.

The same guide links clear, correct invoices to being paid on time. Its checklists include keeping copies of invoices, deciding how overdue payments and debts will be collected, putting your payment terms on invoices and contracts, and reviewing those terms regularly. It also suggests comparing estimated and actual income so that shortfalls show up early, with chasing overdue invoices as one response. The record-keeping page adds that good records help a business manage its cash flow and show lenders such as banks where it stands financially.

Worked example

Illustrative example: aged receivables at the end of a month
Customer invoice	Age	Amount (AUD)
Invoice 1048, design work	0 to 30 days	2,200.00
Invoice 1039, monthly retainer	31 to 60 days	1,650.00
Invoice 1027, website update	61 to 90 days	880.00
Invoice 1012, consulting	Over 90 days	540.00
Total accounts receivable		5,270.00

Illustrative example only: these rows show the method and are not sourced data.

Common mistakes

Sending invoices in batches days after the work is done, which pushes back when you are paid.
Recording a customer's payment as new income instead of matching it to their invoice, which counts the sale twice.
Watching only the total owed instead of how old each invoice is, which hides the few customers who pay very late.
Leaving the due date and payment terms off invoices, so customers are unsure when payment is expected.
Keeping a disputed invoice in receivables for months without noting the dispute or raising it with your accountant.

Common questions

Is accounts receivable an asset?

Yes. Accounts receivable is an asset because it is money the business has a right to collect for work it has already delivered. It is normally grouped with current assets, since invoices are usually due within weeks or months rather than years. It is not cash yet, though: the amount only becomes spendable when customers pay, and any part that is unlikely to be collected may need to be written off, as your accountant advises.

What is the difference between accounts receivable and accounts payable?

Accounts receivable is what customers owe the business, and accounts payable is what the business owes its suppliers. Receivables sit with current assets on the balance sheet, while payables sit with current liabilities. Both come from trading on credit and both are tracked invoice by invoice. Looking at the two side by side shows whether money from customers is likely to arrive in time to pay the bills falling due over the same weeks.

Is accounts receivable revenue?

No, although in accrual books the two are linked. Revenue is the income from a sale, shown on the profit and loss statement for the period in which the sale was made. Accounts receivable is the unpaid part of that income, held on the balance sheet until the customer pays. When the payment arrives it reduces accounts receivable rather than being recorded as revenue a second time, which is why each payment is matched to its invoice.

How do you calculate accounts receivable days?

A common method divides the accounts receivable balance by the credit sales for a period, then multiplies the result by the number of days in that period. The answer is a rough average of how long customers take to pay. It flags a pattern to look into rather than proving a problem: compare it with the payment terms on your invoices and with your own earlier months, and check the aged receivables list to see which customers are behind.

Related terms

Related service

Accounts payable and receivable

Bills and invoices tracked, with you approving every payment.

More about accounts payable and receivable

Sources

Record keeping
business.gov.au, Australian Government. Current at 15 October 2026, released 7 November 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
Guide to managing cash flow
business.gov.au, Australian Government. Current at 15 October 2026, released 22 December 2025. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.