Money owed to a business by customers for goods or services delivered but not yet paid for. Classified as a current asset on the balance sheet.
Accounts Receivable represents the credit you have extended to customers — you delivered goods or rendered services, they promised to pay later. AR is a current asset because it is expected to convert to cash within the operating cycle (usually 30–90 days for most Philippine SMEs). The AR balance appears on the balance sheet as part of current assets.
Managing AR effectively is one of the most important cash flow disciplines for a Philippine SME. A business can be profitable on paper but cash-starved if its receivables are not collected promptly. The gap between issuing a Sales Invoice and receiving payment is effectively interest-free financing you are providing to your customers.
In practice: Agila Electronics supplies components to OEMs on 60-day terms. At month-end, Agila has ₱1,200,000 in outstanding Sales Invoices from 8 customers. This ₱1,200,000 appears as Accounts Receivable in Agila's balance sheet. Agila tracks each invoice in its AR subsidiary ledger — date, invoice number, customer, amount, due date. When a customer pays, a Collection Receipt is issued and the corresponding AR entry is cleared.
Why it matters: Uncollected AR is a silent cash drain. Many Philippine SMEs operate with 60–90 day terms for large buyers (supermarkets, corporations) while paying their own suppliers within 30 days — creating a cash gap they must bridge with loans or credit lines. Aging your AR regularly (categorizing by 0–30 days, 31–60 days, 61–90 days, 90+ days) identifies overdue accounts before they become bad debts.
For BIR purposes, bad debts (AR that become uncollectible) can be claimed as a deduction — but only after genuine collection efforts are documented and the debt is written off.