What is accounts receivable?

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Students interested in earning an accounting degree online have plenty of topics to study and master. From the most basic principles of accounting to the laws that influence business operations and advanced auditing knowledge and techniques, learners in the University of Alabama at Birmingham’s Bachelor of Science in Accounting program receive a comprehensive education. Students develop a firm grasp of the concepts, skills, and knowledge they’ll need to move along to the next step in their educational or professional career, whether it’s employment, further academic study, or sitting for a variety of professional exams.

Accounts receivable, one of the most necessary components of business operations, is a key consideration for accounting students. Understanding what defines this department, and what sets it apart from its closely related but distinct sister department, accounts payable, will help learners in the UAB Bachelor of Accounting program prepare for future development and employment.

An accounts receivable employee working at her desk.

What is accounts receivable?

Accounts receivable, often called AR in business and accounting parlance, refers to the debts owed to a business from customers or clients who have received goods or services, but have not yet paid in full or at all. Less common but not unheard of in business-to-consumer enterprises, where customers frequently pay in full for a purchase before or immediately after receiving it, accounts receivable is a common consideration in the business-to-business economy. Standards and traditions for what constitutes timely receipt of payment can vary significantly from one industry to another, or even between companies in the same field. However, periods as short as a few weeks or as long as three months can be seen in different parts of the economy.

Effective management of accounts receivable is vital for a business to remain solvent, and it’s also important from a financial management and accounting perspective. While companies can’t buck convention and require their customers to make payments on a significantly shorter schedule than is common for their industry, they can pay close attention to the flow of payments and the agreed-upon due dates for settling outstanding debt. Because of these circumstances, AR is a not just a basic and crucial concept but a core business function as well. Even the smallest businesses where this concern is relevant will have the owner managing outstanding debts and arranging payment plans. In larger businesses, a department of employees will focus on the various needs that come along with AR. A similar group of staff will also primarily engage in work tied to the opposite side of the coin to AR, accounts payable.

Accounts payable vs. receivable

Understanding the accounts payable versus accounts receivable relationship is a key, foundational element of business accounting. Accounts payable are essentially the opposite of AR. Most businesses will have accounts payable, meaning money owed to outside vendors, alongside AR. Companies with AP have a responsibility to pay off this debt and do so in a timely manner, just as businesses holding AR debt expect to be paid.

AP is another foundational concern of business operations, as it can represent a significant financial commitment that requires timely, regular payment. Although these two concepts are closely tied together and one can influence the other, they rarely involve immediate interactions. Although money paid by a customer to settle a debt managed by the accounts receivable team could eventually be used to pay off an obligation to a vendor through the accounts payable department, those funds don’t flow directly from one department to another.

A strong grasp of these two related but distinct workflows is especially important for accounting professionals and students alike. They represent a major source of both income and expenses that need to be secured or paid in a specific time frame. Not only do responsible accounts payable and receivable teams help a company maintain a clear financial picture, they’re a vital component of building healthy, beneficial relationships with both customers and clients. An organization that can consistently settle its accounts payable debts in a timely manner will come to be seen as a valuable and reliable partner that other companies will be eager to work with in the future. Similarly, a business that stays on top of its accounts receivable debts and develops clear expectations for receipt of payment by established deadlines, but is also willing to work with customers who may need extra time in certain circumstances, will be viewed fondly by those clients.

Building a better understanding of accounts receivable at UAB

Students earning an accounting degree online through UAB have the opportunity to develop a strong understanding of the principles of their chosen profession while also learning about a variety of related financial and business management concepts. The Financial Accounting I course, for example, gives students the chance to build knowledge and skills needed to handle core competencies such as financial accounting, financial statements, and receivables. With other accounting and business-focused classes giving students the opportunity to build on this knowledge, applicants can be confident that they will develop a valuable and relevant repertoire of skills by the time they complete the degree requirements and progress to graduation.

UAB is proud to help students earn their degree on their own schedule, balancing existing responsibilities with the work required to prosper in the Bachelor of Science in Accounting program. To learn more about UAB’s flexible, high-quality degree programs, get in touch with us today.

Recommended Readings:

Careers You Can Pursue With a Bachelor of Science in Accounting

Top Skills You Need to Pursue a Career in Accounting

Sources:

Investopedia: Accounts Payable

UAB Collat School of Business: Bachelor of Science in Accounting

UAB Collat School of Business: Course Descriptions BACC