Why Is Accounts Receivable A "Cash Outflow"?

When accounts receivable increases, you will be paying something in cash for that increase

With accounts receivable, you have to record it as revenue on the income statement

At this point you have NOT collected cash

On the income statement, the recorded revenue WILL be taxed by the appropriate tax rate and that represents a "cash outflow"

In A Nutshell: Since you have NOT collected cash, and you record A/R as Revenue on the Income Statement which is taxed and therefore represents a "cash outflow"


The LA Bull

Accounts Receivable

What are reasons for the AR on the balance sheet not matching what is on the cash flow? Do you just use the number on the CF for working cap calculations?

A/R Factoring

If you were an asset-based lender extending credit based on a/r factoring, what would be some key factors to consider when determining the companies overall financial health?

What Are Accounts Receivable (AR)?

Accounts Receivable is an accounting term that represents a company's short-term credit. It is found under Current Assets on a Balance Sheet and Operating Activities on the Cash Flow Statement.

Accounts Receivable is when a customer owes money to the firm because they have received a good or service but have not yet paid for it. For example, purchasing a car on credit would come under Accounts Receivable for the firm you bought it from, as you have received the car but have not yet paid for all of it.

Related Terms