What is an accounts receivable journal entry?

An accounts receivable journal entry is a critical component of the accounting process for businesses that extend credit to their customers. This journal entry records the sale of goods or services on account and the corresponding increase in accounts receivable.

This quick guide will provide a comprehensive overview of accounts receivable journal entries, including their purpose, types, and step-by-step instructions on how to record them accurately.

What is the journal entry for accounts receivable?

A collection of accounts receivable journal entries primarily involves recognizing revenue earned from sales made on credit and the corresponding current assets created, which is the right to collect payment from customers at a future date. This can be made easier using the credit control software.

The basic entry for a credit sale is:

The debit to Accounts Receivable signifies the amount the customer owes the business for services on credit, while the credit to Sales Revenue recognizes the revenue generated by the sale.

AR vs AP: what is the difference?

Accounts receivable (AR) and accounts payable (AP) are mirror images of each other on the balance sheet. AR records what customers owe the business; AP records what the business owes its suppliers. Both arise from credit transactions, but they sit on opposite sides of the ledger and move cash in opposite directions.

How to record accounts receivable journal entries in different transaction scenarios?

Every AR transaction maps to one of the following scenarios, and each scenario has a defined journal entry. The examples below use consistent figures so you can trace the full cycle from sale to settlement.

1. Sale on credit

When a business delivers goods or services and the customer has not yet paid, a receivable is created. Revenue is recognized at the point of delivery, not when cash arrives.

Example: Goods worth $10,000 USD are delivered to a customer on 30-day terms. Accounts Receivable is debited $10,000 USD, and Sales Revenue is credited $10,000 USD.

2. Payment received from customer

When the customer settles the invoice, cash increases, and the receivable is cleared. The accounts receivable aging report tracks which invoices remain open before payment is received.

Example: The customer pays the full $10,000 USD invoice. Cash is debited $10,000 USD, and Accounts Receivable is credited $10,000 USD, closing the balance to zero.

3. Sales discount

When a business offers an early payment discount and the customer takes it, the cash received is less than the invoice value. The discount is recorded as a separate debit.

Example: A 2% early-payment discount is offered on the $10,000 USD invoice. The customer pays $9,800 USD. Cash is debited $9,800 USD, Sales Discounts is debited $200 USD, and Accounts Receivable is credited $10,000 USD.

4. Interest charges on late payments

When a customer pays late and the business charges statutory or contractual interest, the interest receivable must be recorded separately. In the US, businesses may charge interest on overdue accounts according to the terms agreed with the customer, state usury laws, or the Prompt Payment Act (for vendors doing business with the federal government). Once the interest cash is received, the receivable is cleared.

Step 1: Recording the interest owed:

Step 2: When cash is received:

Example: An invoice was 30 days overdue. The business charges $150 USD in statutory interest. Interest Receivable is debited $150 USD, and Interest Income is credited $150 USD. When the customer pays the interest, Cash is debited $150 USD, and Interest Receivable is credited $150 USD.

5. Partial payments and payment plans

A customer making a partial payment or entering a structured payment plan does not clear the full AR balance. Only the amount received is credited against the outstanding invoice. The remainder stays on the aging schedule until settled. With the payment plans feature on Chaser, you can manage installment arrangements and track what remains outstanding.

Journal entry for each partial payment received:

Example: A customer owes $10,000 USD and agrees to pay in two installments. The first payment of $4,000 USD arrives. Cash is debited $4,000 USD, and Accounts Receivable is credited $4,000 USD, leaving $6,000 USD on the AR balance. When the second payment of $6,000 USD arrives, the same entry is repeated, clearing the balance to zero.

6. Bad debt write-off

When a specific invoice is confirmed uncollectible, it is written off directly against the AR balance using the direct write-off method. This increases the bad debt expense and removes the receivable from the ledger.

Example: A $2,500 USD invoice from a customer in liquidation is confirmed uncollectible. Bad Debt Expense is debited $2,500 USD, and Accounts Receivable is credited $2,500 USD.

7. Allowance for doubtful accounts

When a business estimates that a certain amount of overdue payments on accounts receivable may not be collected, it creates an allowance for doubtful accounts. This entry reduces the amount of accounts receivable and recognizes the bad debt expense. For a full walkthrough of how to calculate and manage uncollectible accounts, see the linked guide.

Step 1: Recording the estimated allowance at period end:

Step 2: Writing off a specific invoice against the allowance:

Example: At month-end, a business estimates 2% of its $50,000 USD AR balance is at risk, a $1,000 USD allowance. Bad Debt Expense is debited $1,000 USD, and Allowance for Doubtful Accounts is credited $1,000 USD. The following month, a specific $400 USD invoice is confirmed uncollectible: Allowance for Doubtful Accounts is debited $400 USD, and Accounts Receivable is credited $400 USD.

Adjusting and correcting entries

Errors in AR entries are corrected through reversing entries or adjusting entries, depending on whether the accounting period is still open or has been closed. The approach differs slightly for each case, but the goal is the same: the general ledger must reflect the correct position.

Two worked examples cover the most common corrections:

Correcting an entry recorded at the wrong amount

An invoice for $1,050 USD was accidentally posted at $1,500 USD. The AR balance is overstated by $450 USD. A correcting entry reverses the excess.

This brings the AR balance down to the correct $1,050 USD without touching the original entry.

Reversing an accrual at period close

Revenue of $3,000 USD is accrued at month-end (period A) because the work is complete, but the invoice has not yet been raised. In period B, when the invoice posts, the accrual is reversed to avoid double-counting.

Period A (accrual recorded):

Period B (accrual reversed when invoice posts):

The invoice entry in period B then records the transaction normally, restoring the correct balance.

How AR journal entries affect financial statements

Every AR journal entry flows through to at least one of the three core financial statements. The table below maps each entry type to its impact:

The cash flow point is the most counterintuitive outcome for non-accountants: a business can report strong profit on the income statement while facing a cash shortfall simply because AR is not converting to cash fast enough. A $200,000 USD revenue quarter means little if $80,000 USD of that sits in overdue invoices. Accurate AR journal entries are what make this gap visible, and accounts receivable management practice is what closes it.

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