What is meant by accounts receivable?

Accounts receivable refers to the amounts of money that a company is owed by its customers for goods or services that have been delivered or used but not yet paid for. This asset represents the expectation of receiving cash in the future and is recorded on the balance sheet as a current asset, as it is typically expected to be collected within a year.

The definition directly aligns with the nature of accounts receivable, which is critical for understanding a company’s liquidity and its ability to manage cash flow. When customers purchase on credit, they create an account receivable for the selling company, which essentially means that these customers have an obligation to pay the company for the products or services received.

The other options represent different aspects of financial transactions: liabilities or expenses, but they do not accurately define accounts receivable. For instance, money owed by the company to its suppliers pertains to accounts payable, while expenses incurred but not yet paid are related to accrued liabilities. All cash transactions made by a company do not specifically refer to receivables and instead encompass a broader scope of cash flow activities. Thus, the correct interpretation of accounts receivable is specifically the outstanding debts owed to the company by its customers.