Accounts receivable is money owed to regularly used by businesses. When a company sells goods or services on credit, it does not receive cash immediately. Instead, the customer promises to pay later. That promise is an asset, and it is known as accounts receivable. This is recorded using the accounts receivable journal entry. In layman terms, in the case of credit sale by a business, records should be passed using accounts receivable journal entry where accounts receivable are debited and sale is credited. Now, let us discuss the topic of accounts receivable journal entry in more details in simple words with the help of examples. We will discuss how to record it, we will look at what the double entry looks like, and we will see how it works in a “real accounting” scenarios.
What is the Journal Entry For Accounts Receivable?
Accounts Receivable Journal Entry After the sale on credit, the money owed by a customer is recorded as accounts receivable. This records in the books that your business received income and has to receive money later.
- The credit sales journal entry
- A company that sells something on credit needs to make two records:
- The revenue from the sale.
- The revenue it anticipates receiving in the future.
This is done via the accounts receivable journal entry. This means that you will have to debit one account and credit the other in the double entry system. This involves debiting the accounts receivable account and crediting sales revenue account. And what that means is that the business is growing its asset (receivable) and also booking the income.
Examples of Accounts Receivable Entry
In this entry one business sold goods worth ₹10,000. The customer will pay later. Therefore, speaking of accounts receivable debit or credit? We debit it because it is an increase to an asset. This is a new entry that uses the accounts receivable double entry system that keeps books in balance at any time. The account receivable entry looks like this:
| Date | Account | Debit (₹) | Credit (₹) |
| 01-Apr-25 | Accounts Receivable | 10,000 | |
| Sales Revenue | 10,000 |
When Payment is Received
At subsequent point of time when money is paid by customer the journal entry passed will be:
| Date | Account | Debit (₹) | Credit (₹) |
| 10-Apr-25 | Cash | 10,000 | |
| Accounts Receivable | 10,000 |
Now:
- The cash comes in.
- So, cash is debited.
Since the receivable is cleared, we credit accounts receivable. This gives you some practical insight into how journalizing accounts receivable in accounting works.
Key Takeaways
- When credit sale is occurred, that will always debit accounts receivable.
- Whenever cash is collected, please credit accounts receivable.
- In accounts receivable accounting, these journal entries are crucial.
- If you’re in this situation, you need to know this in order to keep your company books in order.
Accounts Receivable in Accounting
If your working company sells on credit, you ought to know how to record recivables in its books. This is a regular activity in accounting and plays a huge role in controlling a firm’s cash flow.The recording begins with a sales transaction.
For example, let’s say a customer purchases goods for ₹25,000 on credit, with a payment term of 30 days. The business is not actually getting cash now; rather it has to demonstrate that it has earned that income.” Thus, the journal entry for accounts receivable is generated by the business.
Here’s how the process of recording accounts receivable looks:
- Find out the amount of credit sale.
- You get this journal telling you to debit accounts receivable and credit sales.
- When the customer pays, make a new entry that debits cash and credits accounts receivable.
- This maintains the accuracy of accounting records. It assists you in tracking how much customers owe at any given time.
Step-by-step Example
For instance, if a stationery company has sold goods worth ₹15,000 to a school on credit.
At The Time Of Sale, the Journal Entry Would Look Like This
| Date | Account | Debit (₹) | Credit (₹) |
| 05-May-25 | Accounts Receivable | 15,000 | |
| Sales Revenue | 15,000 |
At The Time Of Payment Journal Entry
| Date | Account | Debit (₹) | Credit (₹) |
| 25-May-25 | Cash | 15,000 | |
| Accounts Receivable | 15,000 |
This flow shows how it looks in books for an accounts receivable transaction.
Why is this Important?
- It indicates income that has been earned but for which no payment has arrived yet.
- Indeed, it allows you to keep an eye on overdue payments.
- It maintains the integrity of financial statements.
This approach for accounts receivable accounting strengthens sound financial control. It is a process Indian students learning accounting have to learn early. It lays a solid foundation for advanced accounting roles.
Process of Recording Accounts Receivable Journal Entry
Now, let’s look at a real accounts receivable example to understand how these entries play out in real life. This section prepares students to see how these entries are used in businesses when sales and collections occur.
Example: A Straightforward Business Flow. A small garments shop sells dresses worth ₹20,000 on credit to a customer. After 20 Days the customer will make the payment.
Step 1: Journal Entry at the Time of Sale
| Date | Account | Debit (₹) | Credit (₹) |
| 01-Jun-25 | Accounts Receivable | 20,000 | |
| Sales Revenue | 20,000 |
It means the company provided the products but has not received the payment yet. Therefore, it debits account receivable, now that it is an asset. It records sales as income to its records.
Step 2: Journal Entry When Customer Pays
| Date | Account | Debit (₹) | Credit (₹) |
| 21-Jun-25 | Cash | 20,000 | |
| Accounts Receivable | 20,000 |
- Customer paid the money.
- Cash increases, so debit it.
- Can credit it as receivable is gone.
Examples of Accounts Receivable Entry in Real Life
In big corporations, lots of these accounts receivable entry deals occur all the very same day. Books are also kept neat with proper recording of accounts. It also assists businesses in conducting audits and preparing financial reports accurately.
The Fundamentals Every Student Needs to Know
As an Indian student gearing up for your accounting examinations, you will have to become proficient at recording accounts receivable. These entries are frequently asked in the exam as well as the interview. The task is to learn how to write accounts receivable journal entry.
Relation to ACCA Syllabus
In ACCA, accounts receivable journal entries fall under Financial Accounting and Financial Reporting modules. This post discusses recognizing, measuring and reporting receivables under IFRS on the basis of IFRS 9 & IFRS 15. The understanding is critical for the production of accurate balance sheets, income statements, and the assessment of credit risks. Profound knowledge in this domain builds the base for complex subjects related to consolidations, audit, and financial analysis.
Accounts Receivable Journal Entry ACCA Questions
Q1. What international accounting standard primarily governs the recognition of revenue for receivables?
A) IFRS 9
B) IFRS 13
C) IFRS 15
D) IAS 2
Ans: C) IFRS 15
Q2: Sale of goods on credit the proper accounts receivable journal entry?
A)Debit Cash, Credit Sales Revenue
B) Debit Accounts Receivable, Credit Sales Revenue
C) Debit: Sales Revenue, Credit: Accounts Receivable
D) Debit Inventory, Credit Accounts Receivable
Ans: B) Debit Accounts Receivable, Credit Sales Revenue
Q3: What does recording accounts receivable do to the balance sheet?
A) Increase liabilities
B) Decrease equity
C) Increase current assets
D) Increase non-current assets
Ans: C) Created more current assets
Q4: What is the appropriate adjusting entry for bad debt using the allowance method?
A) Bad Debt Expense (debit): Allowance of Doubtful Accounts (credit)
B) With a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable
C) Debit Cash, Credit Accounts Receivable
D. Debit Sales Revenue, Credit Bad Debt Expense
Ans: A) Bad Debt Expense (debit): Allowance of Doubtful Accounts (credit)
Q5: What is not included in net realizable value of receivables?
A) Gross Receivables
B) Allowance for Probadia
C) Expected Returns
D) Inventory Obsolescence
Ans: D) Inventory Obsolescence;
Relevance to CMA Sylalbus
Accounts Receivable listed in the US CMA Exam (US CMA Part 1 – Financial Planning, Performance and Analytics) under Working Capital Management. It is essential to comprehend the journal entries connected with receivables since it is part of the current assets, and liquidity is crucial to overlook along with analyzing credit policies – which is vital to manage business and cash flow.
Accounts Receivable Journal Entry CMA Questions
Question 1: What impact does recording a credit sale have on financial statements?
A) Reduces cash flow
B) Revenue and AR increase
C) Decreases accounts payable
D) Has no effect
Ans:(b) revenue and accounts receivable increase
Q2: Which entry records a bad debt issuing the direct write-off method?
A) Debit Bad Debt Expense, Credit Cash
B) Debit Allowance for Doubtful Accounts, Credit Sales
C) Debit Bad Debt Expense, Credit Accounts Receivable
D) Debit Accounts Receivable, Credit Sales Revenue
Ans: C) Debit Bad Debt Expense, Credit Accounts Receivable
Q3: What ratio indicates how efficiently receivables are managed?
A) Quick Ratio
B) Inventory Turnover
C) Turnover of Accounts Receivable
D) Debt to Equity Ratio
Ans: C) Accounts Receivable Turnover
Q4: What is the number one risk with managing accounts receivable?
A) Inventory cost
B) Obsolete machinery
C) Uncollectible debts
D) Supplier delays
Ans: C) Uncollectible debts
Q5: When partial payment is received from a customer, what entry will be recorded?
A) Debit Cash, Credit Accounts Receivable
B) Debit Accounts Receivable, Credit Revenue
C) Debit Sales, Credit Cash
D) Debit Inventory, Credit Receivables
Answer A ) Debit Cash, Credit Accounts Receivable
Relevance to US CPA Syllabus
The Financial Accounting and Reporting (FAR) section of the CPA syllabus tests accounts receivable. The unaudited journal entries related to receivables provide the basis for discussing revenue recognition, uncollectible accounts, and fair value estimates. You foster familiarity with direct and allowance methods as you study for the CPA exam while also taking in relevant impairment and aging of receivables standards that are addressed under GAAP.
Accounts Receivable Journal Entry US CPA Questions
Q1: When should revenue on a credit sale be recognized under US GAAP?
A) When cash is collected
B) When invoice is issued
C) When goods are delivered
D) When agreement is signed
Ans:C) When goods are delivered
Q2: The allowance method is best described as:
A) No estimation is needed
B) Only identified bad debts are considered an expense
C) Estimate and record future losses in advance
D) Estimates are made of cash discounts
Ans: C) Estimate and record future losses in advance
Q3: Where on the balance sheet doaccounts receivable appear?
A) As liabilities
B) Under cash equivalents
C) As long-term assets
D) As a current asset, at net realizable value
Ans: D) As a current asset, at net realizable value
Q4: Which of the following is not a component of accounts receivable control?
A) Aging report
B) Credit check policy
C) Inventory reconciliation
D) Collection policy
Ans:C) Inventory reconciliation
Q5: How do you write a journal entry for a sale on account?
A) Debit Cash, Credit Sales
B) Debit Accounts Receivable, Credit Sales
C) Debit to Sales, Credit to Inventory
D) Debit Purchases; Credit Receivables
Ans: B) Debit Accounts Receivable, Credit Sales
Relevance to CFA Syllabus
The CFA Level I curriculum includes accounts receivable as part of Financial Reporting and Analysis. Credit sales impact cash flow, receivables turnover, and revenue recognition and collection efficiency are all aspects CFA candidates must digest. This topic assists with understanding liquidity and earnings manipulation.
Accounts Receivable Journal Entry CFA Questions
Q1: Answer is?? High acc. rec. turnover indicates:
A) Poor liquidity
B) Good credit collecing
C) Low sales volume
D) Increasing liabilities
Ans: B) The ability to collect credit efficiently
Q2: What is the metric that indicates the average time to collect receivables?
A) Return on Assets
B) Days Sales Outstanding
C) Gross Profit Margin
D) Earnings Before Tax
Ans: B) Days Sales Outstanding
Q3: When a company recognizes too small of an allowance for doubtful accounts, what is the reaction?
A) Assets are understated
B) Revenues are understated
C) Profits are overstated
D) Inventory is overstated
Ans: C) Profits are overstated
Q 4. Why do we estimate bad debts under IFRS or GAAP?
A) Match costs with revenues
B) Understate income
C) Avoid paying tax
D) Reduce liabilities
Ans: A) Compensate revenue with expenses
Q5: What journal entry records writing off receivables deemed uncollectible?
A) Dr Accounts Receivable [Asset] Cr Sales
B) Debit Allowance for Doubtful Accounts; Credit Accounts Receivable
C) Debit Accounts Receivable, Credit Cash
D) Debit an expense for Bad Debt, Credit Allowance
Ans: (B) Debit Allowance for Doubtful Accounts, Credit Accounts Receivable
