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Definition: Accounts receivable is an item on the balance sheet that shows how much the company is currently owed.
Advice: When a customer places an order, the company books it as revenue and puts it in account receivable until they're received payment. For this reason, it's very important for a company to be good at collecting on what people owe it. If you see a company that regularly has to write down its accounts receivable or has large "bad debt expense", it means that the company may be making too many sales to people who aren't paying them. Another sign of financial fraud occurs when companies' accounts receivable are increasing proportionally faster than sales: they may be making false sales to inflate their income statements.
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