Ar Accounts Definition

Accounts receivable (AR) represents the credit sales of a business. When a customer buys something on credit, the business records an account receivable. This is an IOU from the customer to the business. The amount owed is called the principal.

The terms of the loan are spelled out in the contract between the two parties. The typical terms are that the customer will make periodic payments until the debt is paid in full. The interest rate may be fixed or variable.

The account receivable account is important because it tracks money that is owed to the company. This information is used in financial reporting and decision-making.