WFYI logo

Understanding Accounts Receivable Journal Entries: Debit or Credit?

Accounts receivable represents amounts owed to a business for credit sales, necessitating specific journal entries. These entries are crucial for managing overdue sales and ensuring financial accuracy. Accounts receivable are classified as assets and typically carry a debit balance on a company's balance sheet, reflecting future cash inflows.

📖 2 min read read🏷️ Accounts Receivable

Understanding Accounts Receivable Journal Entries: Debit or Credit?

Accounts receivable represent the amounts owed to a business by its customers for goods or services sold on credit. A specific journal entry for accounts receivable is necessary to record these credit sales and establish a debtors' account, also known as accounts receivable, within a company's financial records.

This article details the key journal entries associated with accounts receivable.

What are Accounts Receivable Journal Entries?

Accounts receivable (AR) are considered assets in a seller's financial statements because customers are obligated to pay these amounts for goods and services. Maintaining accounts receivable records for each debtor enables businesses to effectively manage overdue sales and prevent non-payments.

These journal entries are vital to a business's financial health. The standard journal entry for accounts receivable involves debiting the accounts receivable account and crediting the sales account.

Types of Journal Entries for Accounts Receivable

Various journal entries might be required for different transactions involving accounts receivable. The fundamental and most common journal entries are outlined below.

  1. Journal entry for credit sales

    ParticularsDebitCredit
    Account Receivables A/cXXX
    To Sales A/cXXX

  2. Journal entry for full cash receipt from credit sales

    ParticularsDebitCredit
    Cash/Bank A/cXXX
    To Accounts Receivables A/cXXX

  3. Journal entry for cash received from credit sales after a sales discount

    ParticularsDebitCredit
    Cash/Bank A/cXXX
    Sales Discount A/cXXX
    To Account Receivables A/cXXX

  4. Journal entry for transferring sales discount to the profit/loss account

    ParticularsDebitCredit
    Profit & Loss A/cXXX
    To Sales Discount A/cXXX

  5. Journal entry recording credit sales as a bad debt (unrecoverable debt)

    ParticularsDebitCredit
    Bad Debt A/cXXX
    To Account Receivables A/cXXX

  6. Journal entry for transferring bad debt to the profit/loss account

    ParticularsDebitCredit
    Profit & Loss A/cXXX
    To Bad Debt A/cXXX

Are Accounts Receivable Classified as Debit or Credit?

Accounts receivable represent the funds a company is owed by its customers and are classified as an asset for the business. The company anticipates future economic benefits from this asset in the form of cash payments. Consequently, like all assets, accounts receivable typically have a debit balance. They are listed under current assets on the asset side of the company's balance sheet.

Is e-invoicing not so smooth in your enterprise? A must-read note on top issues & fixes Learn more

Further Reading

Frequently Asked Questions

What is the significance of HSN codes in GST?
HSN (Harmonized System of Nomenclature) codes are used to classify goods and services under GST, ensuring uniformity in taxation. They are crucial for identifying applicable GST rates and for filing returns accurately.
How does Input Tax Credit (ITC) work under the GST regime?
Input Tax Credit (ITC) allows businesses to reduce the tax they pay on their output by the tax they have already paid on inputs. This mechanism prevents the cascading effect of taxes, where tax is levied on tax.
What are the different types of GST returns filed in India?
In India, businesses typically file various GST returns like GSTR-1 (for outward supplies), GSTR-3B (summary return for outward and inward supplies), GSTR-9 (annual return), and GSTR-9C (reconciliation statement) among others, depending on their turnover and type of registration.
Can a business claim ITC on all purchases under GST?
No, a business cannot claim ITC on all purchases. There are certain blocked credits under GST, such as those for personal consumption, motor vehicles (with some exceptions), and goods/services used for exempted supplies, which are not eligible for ITC.
What is the Reverse Charge Mechanism (RCM) in GST?
Under the Reverse Charge Mechanism (RCM), the recipient of goods or services is liable to pay GST instead of the supplier. This applies to specific notified goods and services or certain types of unregistered suppliers.

Share Article

Browse by Topics

Related Articles

Popular Articles