Business and Personal Finance: Accounting for Accounts Receivable Transactions

Handling Customer Credit – Accounting for Accounts Receivable Transactions

When it comes to accounts receivable, there are three basic transactions: two that you’ll see a lot of, and one that (ideally) you won’t. The two every- day transactions are recording credit sales and collecting on-account payments. The third involves writing off bad debts. Credit sales are originally recorded in the sales journal, on-account payments in the cash receipts journal, and bad debt write-offs in the general journal (as you learned in the previous section).

Every accounts receivable transaction hits the general ledger account, but it also hits the individual customer account in your subledger. In the customer ledgers, every single transaction is recorded individually. Invoices show up as debits, increasing the account balance; the usual credit side of the entry includes sales and possibly sales tax payable. Payments show up as credits, decreasing the account balance; the debit side of these entries is cash. In the general ledger, though, only summary entries from the sales or cash receipts journal are posted.