Accounts receivable is the money customers owe a company for goods or services it has already delivered on credit. Under IFRS 15, a receivable is a right to payment that is unconditional: only the passage of time is needed before payment is due. It is collected on the payment terms of each invoice.
What is accounts receivable?
Accounts receivable (AR) is the total of unpaid customer invoices at a date. When a company delivers and lets the customer pay later, it records the revenue and a receivable together. When the customer pays, cash goes up and the receivable goes down. Revenue does not change.
IFRS 15 defines a receivable as an entity's right to consideration that is unconditional, meaning only the passage of time is required before payment is due (paragraph 108). If the company still has to do something before it can bill, the right is a contract asset instead (paragraph 107). Receivables are then measured and impaired under IFRS 9.
How does accounts receivable work?
- Invoice on deliveryIssue the invoice when the goods or service are delivered, and record the sale and the receivable, with VAT where it applies.
- Track the due dateEach invoice falls due under its payment terms, for example 30 or 60 days. The aging report groups open invoices by how far past due they are.
- Remind and collectRemind customers before and after the due date. A planned sequence of reminders is called dunning.
- Apply the cashMatch each receipt to the invoices it pays, known as cash application, so each customer balance is right.
- Provide for credit lossesUnder IFRS 9 the loss allowance on trade receivables is always lifetime expected credit losses (paragraph 5.5.15). A provision matrix with rates by days past due is one accepted practical method (paragraph B5.5.35).
- Reconcile at month endAgree the total of the customer ledger to the receivables control account in the general ledger.
What does accounts receivable look like in practice?
Why does accounts receivable matter for GCC finance teams?
Receivables are often the largest current asset after cash, and every day an invoice stays unpaid is a day the business funds the customer. Days sales outstanding measures how long collection takes, and the 13-week cash flow forecast shows when the money is expected.
In Saudi Arabia, a standard-rated sale carries VAT at 15%, in force since 1 July 2020, so the receivable a customer owes includes the VAT on the invoice while revenue does not. ZATCA's e-invoicing rules also require taxpayers, other than non-residents, to issue their tax invoices electronically, which gives each receivable a structured invoice record to match payments against.
Questions people ask
Is accounts receivable an asset or a liability?
An asset. It is money owed to the company and is normally presented in current assets. The mirror image, money the company owes its suppliers, is accounts payable.
What is the difference between a receivable and a contract asset?
A receivable is an unconditional right to payment: only time has to pass. A contract asset is a right to payment that still depends on something else, such as finishing the next stage of the work. Under IFRS 15 the contract asset becomes a receivable once that condition is met.
How much should a company provide for bad debts?
Under IFRS 9 the loss allowance on trade receivables equals lifetime expected credit losses. A provision matrix built from historical loss rates by days past due, adjusted for current and expected conditions, is a common way to estimate it. Your auditor will ask how the rates were set.
Does accounts receivable include VAT?
Yes. The receivable is what the customer owes, so on a standard-rated sale in Saudi Arabia it includes the 15% VAT. Revenue excludes it.
Official and primary sources, read on the date shown. Rules change: confirm with the authority or your adviser before you act.
- IFRS Foundation: IFRS 15 Revenue from Contracts with Customers (issued standard, HTML), paragraphs 107 and 108 (read 9 October 2026)
- IFRS Foundation: IFRS 9 Financial Instruments (issued standard, HTML), paragraphs 5.5.15 and B5.5.35 (read 9 October 2026)
- ZATCA news: VAT at 15% in force from 1 July 2020 (read 9 October 2026)
- ZATCA: What is e-invoicing (read 9 October 2026)