Accounts Receivable Journal Entry is Debit the Accounts Receivable/Debtors/Party Account and Credit the Sales Account. Accounts Receivable (AR) represents money owed to a business by its customers for goods or services provided on credit basis. When a sale is made on credit, the business records the amount as accounts receivable. Later, when the customer pays the amount owed, the business records the payment and reduces the accounts receivable balance.
Initial Sale on Credit
Let’s say your business sells goods worth $10,000 on credit to a customer on September 1, 2024.
Journal Entry (September 1, 2024):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 09-01-2024 | Accounts Receivable | 10,000 | |
| 09-01-2024 | To Sales Revenue | 10,000 |
Explanation:
- Accounts Receivable will debited to reflect the amount the customer owes the business.
- Sales Revenue will credited to record the revenue earned from the sale.
Receipt of Payment from Customer
Suppose the customer pays the $10,000 on October 1, 2024.
Journal Entry (October 1, 2024):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 10-01-2024 | Cash | 10,000 | |
| 10-01-2024 | To Accounts Receivable | 10,000 |
Explanation:
- Cash will debited to reflect the cash received from the customer.
- Accounts Receivable will credited to reduce the amount owed by the customer.
Example Scenarios for Accounts Receivable Journal Entries
Example 1: Sale on Credit with Early Payment Discount
Your business sells $8,000 worth of goods on credit on November 1, 2024. The payment terms include a 2% discount if paid within 10 days. The customer pays on November 8, 2024 and takes advantage of the discount.
Journal Entry for Sale (November 1, 2024):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 11-01-2024 | Accounts Receivable | 8,000 | |
| 11-01-2024 | To Sales Revenue | 8,000 |
Journal Entry for Payment with Discount (November 8, 2024):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 11-08-2024 | Cash | 7,840 | |
| 11-08-2024 | Sales Discounts | 160 | |
| 11-08-2024 | To Accounts Receivable | 8,000 |
Explanation:
- Sales Discounts will debited to account for the discount given to the customer.
- Cash will debited for the net amount received.
- Accounts Receivable will credited to clear the outstanding balance.
Example 2: Partial Payment Received from Customer
Your business sells $12,000 worth of goods on credit on October 15, 2024. The customer makes a partial payment of $5,000 on November 15, 2024.
Journal Entry for Sale (October 15, 2024):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 10-15-2024 | Accounts Receivable | 12,000 | |
| 10-15-2024 | To Sales Revenue | 12,000 |
Journal Entry for Partial Payment (November 15, 2024):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 11-15-2024 | Cash | 5,000 | |
| 11-15-2024 | To Accounts Receivable | 5,000 |
Explanation:
- The initial sale is recorded by debiting Accounts Receivable and crediting Sales Revenue.
- The partial payment is recorded by debiting Cash and crediting Accounts Receivable for the amount paid, leaving a balance of $7,000 still owed by the customer.
Example 3: Bad Debt Expense for Uncollectible Accounts Receivable
Sometimes, a customer may not pay the amount owed, and the business has to write off that amount as a bad debt. Suppose a customer who owes $2,500 is unable to pay, and the business decides to write off the debt on December 31, 2024.
Journal Entry (December 31, 2024):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 12-31-2024 | Bad Debt Expense | 2,500 | |
| 12-31-2024 | To Accounts Receivable | 2,500 |
Explanation:
- Bad Debt Expense will debited to reflect the loss from the uncollectible account.
- Accounts Receivable will credited to remove the amount from the books.
Example 4: Recovery of Previously Written-Off Accounts Receivable
If a customer that was previously written off as a bad debt pays the amount owed, the business must reverse the write-off and record the payment. Let’s say a customer who owes $2,500 and was written off on December 31, 2024, pays on January 15, 2025.
Journal Entry to Reverse the Write-Off (January 15, 2025):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 01-15-2025 | Accounts Receivable | 2,500 | |
| 01-15-2025 | To Bad Debt Expense | 2,500 |
Journal Entry for the Receipt of Payment (January 15, 2025):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 01-15-2025 | Cash | 2,500 | |
| 01-15-2025 | To Accounts Receivable | 2,500 |
Explanation:
- The first entry reverses the previous write-off, restoring the Accounts Receivable and eliminating the Bad Debt Expense.
- The second entry records the cash received and clears the Accounts Receivable.
Example 5: Sale on Credit with Installment Payments
Your business sells $15,000 worth of goods on credit on December 1, 2024. The payment terms allow the customer to pay in three equal installments each of $5,000, due on January 1, February 1, and March 1, 2025.
Journal Entry for Sale (December 1, 2024):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 12-01-2024 | Accounts Receivable | 15,000 | |
| 12-01-2024 | To Sales Revenue | 15,000 |
Journal Entry for First Installment Payment (January 1, 2025):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 01-01-2025 | Cash | 5,000 | |
| 01-01-2025 | To Accounts Receivable | 5,000 |
Journal Entry for Second Installment Payment (February 1, 2025):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 02-01-2025 | Cash | 5,000 | |
| 02-01-2025 | To Accounts Receivable | 5,000 |
Journal Entry for Third Installment Payment (March 1, 2025):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 03-01-2025 | Cash | 5,000 | |
| 03-01-2025 | To Accounts Receivable | 5,000 |
Explanation:
- Accounts Receivable will debited for the total amount of the sale on credit.
- Sales Revenue will credited to recognize the revenue earned.
- For each installment, Cash will debited when payment is received, and Accounts Receivable is credited to reduce the outstanding balance.
Example 6: Sale on Credit with Sales Tax
Your business sells goods worth $20,000 on credit on January 5, 2025. The sale is subject to a 5% sales tax.
Journal Entry for Sale (January 5, 2025):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 01-05-2025 | Accounts Receivable | 21,000 | |
| 01-05-2025 | To Sales Revenue | 20,000 | |
| 01-05-2025 | To Sales Tax Payable | 1,000 |
Explanation:
- Accounts Receivable will debited for the total amount owed by the customer, including the sales tax.
- Sales Revenue will credited for the amount of the sale before tax.
- Sales Tax Payable will credited for the amount of sales tax owed to the government.
Example 7: Early Payment with Partial Discount
Your business sells goods worth $18,000 on credit on February 10, 2025. As per the payment terms, a discount of 3% is available if payment is made within 15 days. The customer pays $9,000 on February 20, 2025, thereby getting a discount on partial payment.
Journal Entry for Sale (February 10, 2025):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 02-10-2025 | Accounts Receivable | 18,000 | |
| 02-10-2025 | To Sales Revenue | 18,000 |
Journal Entry for Partial Payment with Discount (February 20, 2025):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 02-20-2025 | Cash | 8,730 | |
| 02-20-2025 | Sales Discounts | 270 | |
| 02-20-2025 | To Accounts Receivable | 9,000 |
Explanation:
- Accounts Receivable will debited for the full amount of the sale on credit.
- Sales Discounts will debited to account for the 3% discount applied to the partial payment.
- Cash is debited for the net amount received from the customer.
- Accounts Receivable will credited to reduce the amount owed by the customer.
Example 8: Sale on Credit with a Returned Product
Your business sells $25,000 worth of goods on credit on March 1, 2025. On March 10, 2025, the customer returns $5,000 worth of goods because of defects.
Journal Entry for Sale (March 1, 2025):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 03-01-2025 | Accounts Receivable | 25,000 | |
| 03-01-2025 | To Sales Revenue | 25,000 |
Journal Entry for Returned Goods (March 10, 2025):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 03-10-2025 | Sales Returns and Allowances | 5,000 | |
| 03-10-2025 | To Accounts Receivable | 5,000 |
Explanation:
- Accounts Receivable will debited for the total amount of the sale on credit.
- Sales Revenue will credited to recognize the revenue from the sale.
- When goods are returned, Sales Returns and Allowances will debited to reduce the revenue, and Accounts Receivable will credited to reduce the amount owed by the customer.