What is the primary purpose of Accounts Receivable (AR)?

The primary purpose of Accounts Receivable (AR) is to manage and record the money owed by customers for goods and services provided. This function is crucial for maintaining the financial health of a business, as it ensures that the company tracks outstanding invoices and collects payments efficiently. By effectively managing accounts receivable, a business can maintain cash flow, assess customer creditworthiness, and identify potential collection issues.

This process involves not only recording sales made on credit but also monitoring the collection of these receivables. By doing so, a company can keep its cash flow stable, allowing it to finance operations and grow. Proper management of AR also contributes to the overall financial reporting of the business, enabling informed decision-making regarding credit policies and customer relationships.