Accounts Receivable Journal Entries
Why is the journal entry for accounts receivable important?
Because accounts receivable are the foundation of your company’s finances, journal entries for them are crucial. You can track financial transactions with the help of journal entries to determine how each one impacts the business.
There are several benefits of journal entries, such as:
You make journal entries that are exactly equal in debit and credit. For instance, when a company sells a customer a good or service, it creates an invoice for the customer to accept. When adding a journal entry, you use the invoice to debit the accounts receivable account and credit the sales account. You can record a debit in the sales account and a credit in the accounts receivable account once the customer has paid the invoice.
The journal entries balance one another in this manner, supporting the accounting equation. Many accounting systems were founded on the accounting equation. The accounting equation states:
Assets = Liabilities + Equity
As a result, a company’s assets equal its liabilities and equity. This equation enables the business to balance its journal entries for a double-entry accounting system, where entries recorded as debits also require comparable credit entries.
What is a journal entry for accounts receivable?
A company’s written record of each financial transaction assembled into an accounting journal is known as a journal entry for accounts receivable. The journal maintains the financial records’ organization, which is essential to the business’s successful management.
Companies use invoices to report accounts receivable transactions. Invoices contain details about the sale of the goods or services, including a description of the goods or services, the total cost, and the date that payment is due.
A journal entry may contain components such as:
You make a journal entry in the accounting journal when you send an invoice to a client. You record the total amount owed from the invoice as a debit in the accounts receivable account for the journal entry. Additionally, you would enter a credit in the sales account for the entire amount owed from the invoice. Due to the requirement to record debits and credits for each journal entry, journal entries are advantageous in a double-entry accounting system.
Most businesses find it useful to use accounting software that creates invoices and records journal entries due to the complexity of a company’s financial transactions.
How to compose a journal entry for accounts receivable
You can use the steps below to write an entry in your journal for accounts receivable:
1. Document accurate financial records
Be sure to consistently and accurately record your financial records and reports in order to provide a complete picture of your company’s financial situation. It’s crucial to credit and debit the appropriate amounts to the appropriate accounts when adding journal entries. The total credit and debit balances must also be equal.
2. Record the details of each transaction
Enter the particulars of every monetary transaction to create a journal entry. The date, the account name and number, the journal entry number, and a succinct description of the transaction are some examples of these information.
3. Record the debit amount
According to the invoice, enter the entire debit amount in the accounts receivable account. You can record a debit in the sales account when your customer fully pays the invoice.
4. Record the credit amount
According to the invoice, enter the total amount of credit in the sales account. You can enter a credit in the accounts receivable account following the customer’s payment of the invoice. The business must ensure that the debit and credit amounts balance.
5. Keep formatting consistent
Because it keeps the business’s finances organized, it’s crucial to maintain consistency in the formatting of the journal entries in the accounting journal or ledger. You can more easily maintain an accurate representation of your company’s financial health if your financial records are organized.
Types of journal entries
A company may use either simple journal entries or compound journal entries in double-entry bookkeeping. Typically, a business uses straightforward journal entries to make payments, refund customers, and transfer funds between accounts.
Some characteristics of simple journal entries include:
Compound journal entries are used by a business to record payroll payments and deductions. Additionally, a business can add multiple line items to a supplier invoice linked to different business expenses by using compound journal entries.
Some characteristics of compound journal entries include:
Tips for creating a journal entry for accounts receivable
Here are some tips for creating journal entries:
Stay organized
Keep your financial records, transactions, and invoices organized when writing journal entries. Maintaining your company’s financial health requires organization. To prevent confusion and financial mistakes, implement clear and consistent billing procedures. It’s critical to send invoices on time so that customers are aware of their financial obligations.
Examine accounts receivable
The accounts receivable account should be regularly monitored in order to manage a company’s finances effectively. A company can find financial errors before they have an impact on its finances by regularly reviewing the accounts receivable account.
Provide electronic invoices
By sending customers electronic invoices, businesses can optimize their billing and payment processes. Accounting software comes in a variety of versions that can assist you in switching from paper to electronic financial methods. It is no longer necessary to mail paper invoices or receive paper checks in the mail when using electronic billing methods. Overall, keeping track of your finances electronically ensures that each journal entry is accurate and consistent.
Example of a journal entry for accounts receivable
Here is an illustration of an accounts receivable journal entry:
A company sells a product to a customer. The products revenue is $100, plus a 6% sales tax. Therefore, the sales tax is an additional $6. They charge the customer $106 for the companys product.
The journal entry would reflect a debit for the full amount the customer has paid in the accounts receivable account. Additionally, the journal entry would document a credit in the revenue and sales tax payable accounts.
DateAccountNotesDebitCredit1/20/2021Accounts Receivable
106
Sales Tax Payable
6
Revenue
100
In this instance, the business has made an account receivable journal entry. The accounts receivable, sales tax payable, and revenue accounts have been used to organize every aspect of the transaction. The business adds the entire payment, $106, to the accounts receivable line. The business adds $6 in sales tax to the line marked “Sales Tax Payable.” Finally, the business records the $100 total revenue from the products in the revenue line.
FAQ
What is the double entry for accounts receivable?
Due to the customer’s obligation to pay the debt, businesses include accounts receivable as an asset on their balance sheets. Additionally, accounts receivable are current assets, which means the debtor must pay the account balance within a year or less.
How account receivable is recorded?
Debit your Accounts Receivable account for $240 and credit your Revenue account for $240 to make the sales journal entry. You can undo the initial entry after the customer makes payment by crediting your Accounts Receivable account and deducting the amount of the payment from your Cash account.
Can cash and accounts receivable journal entry?
You must make the subsequent adjusting entry to reflect the amount of services you provided during one accounting period. Debit the account for your receivables and credit the account for your service revenues. As a result of making this adjusting entry, your books’ accounts receivable balance will grow.
What is the adjusting entry for accounts receivable?
You must make the subsequent adjusting entry to reflect the amount of services you provided during one accounting period. Debit the account for your receivables and credit the account for your service revenues. As a result of making this adjusting entry, your books’ accounts receivable balance will grow.
