Core Financial Modeling
Learn accounting, 3-statement modeling, valuation/DCF analysis, M&A and merger models, and LBOs and leveraged buyout models with 10+ global case studies.
Learn moreWhat is Accounts Receivable (“AR”)? Why This Question Matters? What happens when AR goes up? What happens when it goes down?
Accounts Receivable on the 3 Financial Statements
Here’s an outline of what we cover in this free tutorial:
1. Why This Question Matters
This one is both a “real world” scenario, AND a very common question in interviews.
2. What is Accounts Receivable (“AR”)?
Line item on Balance Sheet for cash that you still need to collect from customers.
Recorded it as revenue, but haven’t received the cash payment from them yet (Like an “IOU”).
Sent invoice and delivered product, but still waiting on payment from customer.
(Standards differ a bit by company and industry, but that’s the basic idea)
Learn accounting, 3-statement modeling, valuation/DCF analysis, M&A and merger models, and LBOs and leveraged buyout models with 10+ global case studies.
Learn moreIntuition: Recorded paper profit that you haven’t actually gotten in cash yet…
But those taxes you pay on that profit ARE in cash!
So you’re paying extra taxes for profit you don’t have yet, which reduces your cash.
Intuition: AR “going down” means a cash collection has taken place… but the revenue, profits, and taxes you’ve recorded don’t change.
So all you do is REMOVE the cash decrease on the CFS…
And cash on the Balance Sheet is now up, with Retained Earnings up on the other side to balance it.
Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.