If cash is inadequate or improperly managed the company may become insolvent and be forced into bankruptcy. Include all checking, money market and short term savings accounts under Cash. For more on cash management, go to the lesson on cash management and cash flow projections. . Accounts receivable are dollars due from customers . They arise as a result of the process of selling inventory or services on terms that allow delivery prior to the collection of cash.
Inventory is sold and shipped, an invoice is sent to the customer, and later cash is collected.
The receivable exists for the time period between the selling of the inventory and the receipt of cash. For more on terms refer to the article on Aging Accounts Receivables . Receivables are proportional to sales. As sales rise, the investment you must make in receivables also rise. The ABC Company gives Net 30 Day terms to its customers.