Accounts receivable

Accounts receivable can be analogized to money owed to the Dallas Cowboys by someone who has bought a ticket to a football game but has not yet paid. Imagine the Dallas Cowboys are hosting a football game, and they sell tickets to the game to fans. Some of these fans may choose to pay for their tickets upfront, while others may choose to pay at a later date. The money owed to the Dallas Cowboys by the fans who have not yet paid is considered accounts receivable.

Just like the Dallas Cowboys have the right to receive payment for the tickets they have sold, a business has the right to receive payment for goods or services it has provided to its customers on credit. In short, accounts receivable represent money owed to a business by its customers for goods and services that have been sold on credit. The accounts receivable are considered an asset on the balance sheet and are recorded in the accounts receivable ledger until they are collected. Like the Dallas Cowboys' right to receive payment for the tickets they have sold, accounts receivable represent a company's right to receive payment for goods and services it has provided to its customers.