What does accounts receivable (A/R) indicate for a business?

Accounts receivable (A/R) refers to the amounts that customers owe to a business for products or services that have been delivered but not yet paid for. This indicator is crucial for evaluating a company’s liquidity and financial health, as it represents outstanding invoices that are anticipated to be collected in the near future. A high accounts receivable balance could suggest that a company is effectively extending credit to its customers, potentially leading to increased sales, but it also raises concerns about cash flow and the ability to collect those receivables.

In contrast, the other options do not accurately capture the essence of accounts receivable. Payments made by creditors pertain to liabilities rather than receivables, costs incurred relate to operational expenses which are reported on the income statement, and revenue collected from investments does not align with the concept of A/R, as it typically involves cash inflows from sources other than customer transactions. Understanding accounts receivable is essential for managing cash flow and ensuring a business maintains its operational viability.