A sale is realized as and when the invoice is generated but usually, a time period is provided to the customers for the payment of the amount due. This practice of conducting business on credit terms give rise to Accounts Receivable (AR) in the financial statements.
This credit facility is laid down to ensure a smooth flow of the working capital into the businesses. There are complexities involved with the accounts receivable i.e its management, the process of recording in financial statements, credit period etc.