Accounts receivable definition:
“Accounts receivable” refers to money owed to you by your customers for goods or services that you have already provided to them. Many people think of it as a “sale”. If you’ve made a sale but haven’t gotten paid for it yet, you have a receivable.
Accounts receivable example:
Jackie has a grooming supply store. Kim is a customer of hers and runs a dog grooming company. Kim buys doggy shampoo from Jackie for her dog grooming store.
Kim buys Jackie’s dog supplies often, but she sometimes doesn’t have enough cash to pay Jackie immediately; she can only pay Jackie after she gets paid for her next dog grooming service.
Because Kim is a good customer, Jackie has agreed to let Kim buy dog supplies on credit. Instead of making Kim pay immediately, Jackie lets her pay at the end of the month for all the dog supplies she bought from her that month.
Jackie’s bookkeeper will count money that Kim owes Jackie for the dog supplies she bought as an account receivable. (In Kim’s books, it will be recorded as an account payable.)
Why tracking accounts receivable is important:
Keeping tabs on what your company is owed, how quickly you get paid, and your overall balance of credits and debits is a critical part of understanding your company’s financial health. Too many credit’s and you have a negative cash flow.
In the example above, Jackie needs to keep a close eye on her accounts receivable. If Jackie makes a mistake in calculating how much Kim owes her or when it is due, she could lose a lot of money. If she makes inaccurate projections about when she will get paid, her cash flow projections could be mistaken, which could have serious consequences.
It’s best to always have you or your bookkeeper make an account receivable immediately so that you can accurately manage your items owed to you. This is where Quickbooks can be handy as a business owner. You can set it up or have your bookkeeper set it up for you.
At We Figure It Bookkeeping we are pro’s at setting up Quickbooks. Contact us today at wefigureitbookkeeping@gmail.com for more information on how to get a good handle on your accounts receivables.
