Background
Accounts receivable represent the money owed to a firm by its customers for products or services delivered but not yet paid for. It is considered an asset on the firm’s balance sheet because it signifies a legal obligation by the customer to pay for the firm’s offerings.
Historical Context
The concept of accounts receivable likely dates back to the advent of trade and commerce, when businesses began selling goods or services on a credit basis. As formalized accounting practices developed, accounts receivable became a critical element of financial statements.
Definitions and Concepts
Accounts receivable is the amount of money owed to a firm by its customers for goods or services already delivered. It appears as a current asset on the balance sheet because it is usually expected to be converted into cash within a year.
Major Analytical Frameworks
Classical Economics
In classical economics, accounts receivable would be viewed primarily from the perspective of liquidity and the firm’s cash conversion cycle.
Neoclassical Economics
Neoclassical economists might focus on the optimization of credit policies to balance growth and financial stability of a firm, analyzing the opportunity cost of holding receivables versus immediate cash.
Keynesian Economics
From a Keynesian perspective, accounts receivable could be examined in terms of aggregate demand and its influence on a firm’s liquidity and spending pattern, particularly during economic fluctuations.
Marxian Economics
Marxian economists would likely examine accounts receivable in the context of capitalist production and the contradictions inherent in credit systems.
Institutional Economics
Institutional economists might focus on the legal, regulatory, and organizational structures that affect credit terms, negotiation, and the recovery of accounts receivable.
Behavioral Economics
This framework may explore how behavioral biases like optimism bias affect credit terms, and how firms’ and customers’ behavior impacts the management of accounts receivable.
Post-Keynesian Economics
Post-Keynesian economics might critique the role of firm-specific and macroeconomic factors in affecting the liquidity and security of accounts receivable.
Austrian Economics
Austrian economists might focus on the time preferences and subjective values influencing credit, viewing accounts receivable as part of the broader exploration of capital and time structures.
Development Economics
In development economics, the role of accounts receivable might be analyzed in terms of enterprise growth, access to finance for small businesses, and economic development in emerging markets.
Monetarism
Monetarists would likely consider how the management of accounts receivable affects a firm’s cash flow and overall money supply within an economy.
Comparative Analysis
Accounts receivable management varies across different industries and firms. Comparisons can be drawn based on average collection periods, turnover ratios, and risk management practices.
Case Studies
Analyzing how companies like Apple, Walmart, or small businesses manage their accounts receivable could provide practical insights and varied perspectives on effective practices.
Suggested Books for Further Studies
- “Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper
- “Financial Accounting” by Walter T. Harrison Jr., Charles T. Horngren, C. William Thomas
- “Credit Management Handbook” by Burt Edwards
Related Terms with Definitions
- Balance Sheet: A financial statement that provides a snapshot of a firm’s assets, liabilities, and shareholders’ equity at a specific point in time.
- Assets: Resources owned by a firm that have future economic value.
- Liquidity: The ability quickly to convert assets to cash to meet short-term obligations.
- Cash Flow: The total amount of money being transferred into and out of a business.
