Explore here Accounts Receivable accounting topics, including Allowance for Doubtful Accounts, Bad Debt Expense and related matters.
Accounts receivable is a debt from customer, which was resulted by sales made on credit. This means that business sells goods now, but cash for the goods sold will be received after some period of time That payment time term is agreed between the seller and the customers.
Seller sells goods to the customer and after some period of time (for example after 30 days) customer pays cash for these goods. When business makes sale, sales is recored in the books of the seller despite thatcash for the sale will be received later. This is done in accordance with the accrual principle, which in such case means that sales revenue must be recorded as the seller has legal right to claoim cash from the customer.
To record sales revenue the following accounting entry is made:
- D Accounts Receivable – debt from the customer
- _____C Sales Revenue
In this Accounts Receivable is recorded to reflect asset (check Balance Sheet Example and explore how it is reflected). This is a right of the seller to claim debt from the customer.
After 30 days (or other payment term agreed), when business gets cash from the customer, the following accounting entry will be recorded:
- D Cash
- ____C Accounts Receivable
In this way debt from the customer is decreased as cash was received for the goods sold.
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