How to Find Accounts Receivable Balance

Understanding Accounts Receivable

Accounts receivable (AR) represents money owed to a business by its customers for goods or services delivered on credit. This amount is considered a current asset on a company’s balance sheet because it is expected to be collected within a year. Businesses extend credit to customers as a common practice, allowing them to receive goods or services immediately and pay at a later date. This arrangement facilitates sales and builds customer relationships by offering flexible payment options. The existence of accounts receivable directly impacts a business’s cash flow, as these outstanding amounts represent future cash inflows. Effective management of AR ensures that a company can convert its sales into cash efficiently, which is essential for covering operational expenses and funding future growth. AR refers to short-term, unsecured credit from regular business operations, differing from notes receivable, which involve written promissory notes and may carry interest.

Gathering Information for Calculation

Determining your accounts receivable balance requires gathering financial documents and data. The primary source for this information is sales invoices, created each time a product is sold or a service is rendered on credit. Each invoice should contain details, including a unique invoice number, the date of the transaction, the customer’s name, the total amount due, and the agreed-upon payment terms, such as “Net 30,” indicating payment is due within 30 days.

Beyond invoices, a business must also track all customer payments received, noting the date of payment, the amount, and which specific invoice the payment was applied against. Similarly, any credit memos issued to customers, which reduce the amount they owe due to returns or adjustments, must be meticulously recorded. Unapplied customer deposits or prepayments, where a customer has paid but no invoice is yet issued or fully covered, are also necessary. Maintaining organized records, physical or digital, is foundational to accurate tracking and calculating outstanding receivables.

Methods for Determining the Balance

Once all necessary information is compiled, a business can calculate its accounts receivable balance using either manual methods or automated accounting software. For a manual approach, a spreadsheet can serve as an effective tool. Each outstanding invoice should be listed in a separate row, including its original amount due, and then any partial payments received against that specific invoice are subtracted. The sum of all the remaining outstanding balances across all customer accounts will then yield the total accounts receivable balance. Accurate data entry and consistent tracking are important when using this method.

Modern accounting software, such as QuickBooks or Xero, significantly automates the process of determining the accounts receivable balance. Within these systems, businesses can generate an “Accounts Receivable Aging Report,” listing outstanding invoices by how long they are overdue. Alternatively, a “Customer Statement” can be generated for individual customers, showing their specific outstanding balance. The balance sheet report also provides a real-time total of the accounts receivable balance, reflecting all entered invoices and payments.

Reconciling the Accounts Receivable Balance

Reconciling the accounts receivable balance ensures financial record accuracy and identifies discrepancies. The primary purpose of this reconciliation is to match the total balance shown in the detailed accounts receivable sub-ledger—which is the sum of all individual customer balances—with the single Accounts Receivable control account in the general ledger. This process helps confirm that every transaction has been correctly recorded and posted in both the detailed customer records and the overarching financial statements.

Common reasons for discrepancies between the sub-ledger and the general ledger can include unapplied payments that have been received but not yet linked to a specific invoice, data entry errors during invoice creation or payment application, or invoices and credit memos that were not properly posted to the general ledger. Resolving these differences involves reviewing source documents, such as payment receipts and original invoices, and tracing transactions to pinpoint errors. The Accounts Receivable Aging Report also serves as a tool during reconciliation, helping identify overdue invoices contributing to discrepancies and providing an overview of outstanding receivables.