Accounts receivable is an asset entry on a balance sheet representing money owed by customers for goods or services delivered but not yet paid for.
What's happening with accounts receivable?
Accounts receivable reflects money customers owe after receiving goods or services on credit.
This shows up under current assets on the balance sheet when collection is expected within a year. According to AccountingTools, AR gets recorded as a debit to boost the asset and a credit to recognize revenue when the sale happens. Tracking matters because even small AR errors can snowball into big reconciliation headaches. A 2023 study from Journal of Accountancy found that minor AR discrepancies often lead to serious cash flow problems if ignored.
How do you actually record an accounts receivable entry?
When a sale occurs on credit, debit AR and credit sales revenue; when payment arrives, debit cash and credit AR.
Most businesses use software like QuickBooks, Xero, or Sage to handle this automatically. Here's the process: when you make a credit sale, generate an invoice and post the entry—debit Accounts Receivable and credit Sales Revenue. When the customer pays, record debit Cash/Bank and credit Accounts Receivable. Don't skip monthly reconciliations with customer statements, or small errors will pile up. For instance, a $1,000 invoice creates these two entries:
| Transaction | Debit | Credit |
|---|---|---|
| Credit Sale | Accounts Receivable: $1,000 | Sales Revenue: $1,000 |
| Payment Received | Cash: $1,000 | Accounts Receivable: $1,000 |
