When a business collects accounts receivable, it means the company has received payment from a customer who previously owed it money for goods or services provided. The journal entry to record the collection of accounts receivable will involve debiting the cash account (since the business received the money) and crediting the accounts receivable account (since the receivable is no longer owed).
Here’s how the journal entry works:
Journal Entry for Collection of Accounts Receivable:
Assume you collected $5,000 from a customer for an outstanding invoice.
Journal Entry:
- Debit: Cash (Asset) $5,000
- Credit: Accounts Receivable (Asset) $5,000
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 09/06/2024 | Cash A/c Debit | 5,000 | |
| 09/06/2024 | To Accounts Receivable/Party A/c | 5,000 |
Explanation:
- The Cash account will debited because the business is receiving money.
- The Accounts Receivable/Party account will credited because the amount owed by the customer has now been paid, reducing the receivable balance.
This entry ensures the cash flow from the customer payment is accurately recorded, while also removing the corresponding receivable from the company’s books.