Accounts receivable are amounts owed to a business by customers for credit sales invoiced to them on account. When a customer pays an invoice, an account receivable collection journal entry is required to clear the amount on their account.
For example, suppose a business provides services to a customer and has invoiced them 3,000 on account, due in 30 days. On the due date, the customer pays the invoice and the balance on the accounts receivable account needs to be cleared with the following account receivable collections on account journal entry.
Account Receivable Collection Journal Entry
The accounting records will show the following double entry bookkeeping entries for the invoice payment by the customer:
AR Accounts Receivable Collection Bookkeeping Explained
Cash has been received by the business and needs to be debited to the asset account of cash.
The amount is credited to the accounts receivable account of the customer to record the fact that the cash has been received from them. This cash is allocated to the customer invoice and the balance on the account is cleared.
Accounting Equation for Account Receivable Collection Entry
The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities of the business This is true at any time and applies to each transaction. For this transaction the accounting equation is shown in the following table.
In this case one asset cash increases as the cash is received by the business, and another asset (accounts receivable) decreases as the account has now been cleared by the payment of the invoice.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.