Definition
Accounts receivable (AR) represents credit sales awaiting collection. AR is a current asset on the balance sheet and a key component of working capital. Growing AR faster than revenue growth may signal collection problems or aggressive revenue recognition. The allowance for doubtful accounts estimates uncollectible amounts. AR turnover and DSO measure collection efficiency.
lightbulb Example
A company has $10M in AR on $100M annual revenue. AR turnover = 10x. DSO = 36.5 days. If AR grows to $15M on $110M revenue, DSO extends to 49.8 days—signaling potential collection issues or aggressive credit terms.
verified_user Key Points
- Credit sales awaiting customer payment
- Current asset on balance sheet
- Faster AR growth vs revenue = warning sign
- DSO measures collection efficiency