Define 'accounts receivable'.

Accounts receivable represents an essential aspect of a company's financial operations, specifically referring to the amounts owed to the company by its customers as a result of goods or services provided on credit. When a business sells its products or services, it often allows customers to pay at a later date rather than requiring immediate payment. This creates a claim for the business to receive payment in the future, which is recorded as an asset on the company's balance sheet.

This accounts receivable amount reflects customer creditworthiness and the company's ability to collect payments, directly impacting cash flow and financial health. Tracking accounts receivable is crucial for businesses, as it helps manage cash flow, assess credit risks, and maintain proper levels of working capital. Understanding this concept is fundamental in accounting since it underscores the dynamics of credit sales and the importance of collecting receivables efficiently to ensure liquidity.