How is accounts receivable defined?

The definition of accounts receivable specifically refers to money owed to a company by its customers for goods or services that have already been delivered or performed. This represents a claim for payment that the company is expecting to receive in the future and is considered an asset on the balance sheet.

When a company sells goods or renders services on credit, it extends terms to customers and records this amount as accounts receivable. This entry reflects the expectation that the customers will pay the amount due at a later date, thus representing a future inflow of cash.

In the context of the other options, payments made by a company for future services incorrectly characterize accounts receivable, as it involves prepaid expenses rather than receivables. Funds reserved for emergencies pertain to financial planning, not receivables. Lastly, liabilities that must be settled within a year do not relate to receivables at all, as they refer to obligations the company owes to others.