Accounts receivable represent amounts a business is owed by customers for goods or services provided on credit. They are shown as current assets on the balance sheet and are crucial for cash flow management.

‍Example:   Imagine your software company completes a £10,000 project for a client but allows them a 45-day credit period. The outstanding amount is classified as accounts receivable until the client makes the payment. Effective management of accounts receivable ensures timely collection and improves the company's liquidity.