Accounts receivable is the amount owed to a seller by a customer. As such, it is an asset, since it is convertible to cash on a future date. Accounts receivable is listed as a current asset in the balance sheet, since it is usually convertible into cash in less than one year.
If the receivable amount only converts to cash in more than one year, it is instead recorded as a long-term asset on the balance sheet (possibly as a note receivable). Since there is a possibility that some receivables will never be collected, the account is offset (under the accrual basis of accounting) by an allowance for doubtful accounts; this allowance contains an estimate of the total amount of bad debts related to the receivable asset.
The balance in the accounts receivable account is comprised of all unpaid receivables. This typically means that the account balance includes unpaid invoice balances from both the current and prior periods. Conversely, the amount of revenue reported in the income statement is only for the current reporting period. This means that the accounts receivable balance tends to be larger than the amount of reported revenue in any reporting period, especially if payment terms are for a longer period than the duration of the reporting period.
In a situation where a company does not allow any credit to customers - that is, all sales are paid for up front in cash - there are no accounts receivable.
Anyone analyzing the results of a business should compare the ending accounts receivable balance to revenue, and plot this ratio on a trend line. If the ratio is declining over time, it means that the company is having increasing difficulty collecting cash from its customers, which could lead to financial problems.