What is accounts receivable?

Accounts receivable represents a fundamental aspect of accounting and finance, specifically referring to the amounts of money that customers owe to a business for goods sold or services provided on credit. When a company extends credit to its customers, it records this debt as accounts receivable on its balance sheet, indicating that the company expects to collect this amount in the future.

The recognition of accounts receivable is crucial for cash flow management and reflects the company's sales performance. It signifies expected future inflows of cash once customers settle their outstanding balances. Understanding how accounts receivable functions aids in assessing a company’s liquidity position and overall financial health, highlighting how efficiently it manages credit and collections.

In contrast, cash on hand represents liquid assets that are immediately available for transactions, while investments that cannot be liquidated easily are typically classified as long-term or illiquid assets. Future cash flows from sales might encompass various aspects, like anticipated revenues related to sales activities, but they do not specifically denote the existing obligation customers have for previous dealings. Each of these options highlights different financial concepts, but accounts receivable directly pertains to the amounts due from customers for past transactions, making it the correct answer.