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Accounts receivable (AR) are an asset account on the balance sheet that represents money due to a company in the short term. Accounts receivable are created when a company lets a buyer purchase their goods or services on credit.
Accounts receivable can be considered a ?current asset? because it's usually converted to cash within one year. When a receivable is converted into cash after more than one year, instead of being recorded as a current asset, it's recorded as a long-term asset.
Accounts Receivable?the value of all money due to a company for goods or services delivered or used but not yet paid for by customers?is entered in Current Assets as long as the accounts can be expected to be paid within a year.
Accounts payable (AP) represents the amount that a company owes to its creditors and suppliers (also referred to as a current liability account). Accounts payable is recorded on the balance sheet under current liabilities.
Accounts receivable are considered an asset in the business's accounting ledger because they can be converted to cash in the near term. Instead, the business has extended credit to the customer and expects to receive payment for the transaction at some point in the future.