What is Accounts Receivable ("AR")? Why This Question Matters? What happens when AR goes up? What happens when it goes down? <br />By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" <br />Here's an outline of what we cover in this free tutorial: <br /> <br />1. Why This Question Matters <br /> <br />This one is both a "real world" scenario, AND a very common <br />question in interviews. <br /> <br />2. What is Accounts Receivable ("AR")? <br /> <br />Line item on Balance Sheet for cash that you still need to <br />collect from customers. <br /> <br />Recorded it as revenue, but haven't received the cash payment <br />from them yet (Like an "IOU"). <br /> <br />Sent invoice and delivered product, but still waiting on payment <br />from customer. <br /> <br />(Standards differ a bit by company and industry, but that's the <br />basic idea) <br /> <br />3. What happens when AR goes up - record revenue and profit, but no cash received yet... so cash goes down! <br /> <br />Intuition: Recorded paper profit that you haven't actually gotten <br />in cash yet... <br /> <br />But those taxes you pay on that profit ARE in cash! <br /> <br />So you're paying extra taxes for profit you don't have yet, which reduces your cash. <br /> <br />4. What happens when AR then goes down after you've collected the cash - no changes on IS, but cash now INCREASES to reflect the collection, AR decreases, and other side balances via Retained Earnings. <br /> <br />Intuition: AR "going down" means a cash collection has taken <br />place... but the revenue, profits, and taxes you've recorded don't change. <br /> <br />So all you do is REMOVE the cash decrease on the CFS... <br /> <br />And cash on the Balance Sheet is now up, with Retained Earnings up on the other side to balance it. <br /> <br />5. Summary & Intuition Behind Each Step. <br /> <br />Click the link below and go to "Files & Resources" to get this Excel file for yourself. <br />http://breakingintowallstreet.com/biw... <br /> <br />http://www.mergersandinquisitions.com/
