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Accounts Receivable Journal Entry – Debit or Credit

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08 min read.

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Accounts receivable refers to an account created by an organisation for recording the journal entries related to the credit sales of their goods and services. The organisation handles such credit sales transactions by creating account receivables.

What are accounts receivable journal entries?

Accounts receivables or AR are assets in the seller’s book, as the customer owes the sum of money against such sale of goods and services. On the other hand, the accounts payables account is created in the buyer’s books and is a liability for the seller’s debt. Accounts receivables or trade receivables is maintained debtor wise allowing the business to manage their overdue sales and non-payments. 

Accounts receivables journal entries are crucial as they are the cornerstone of its finances. The journal entry for account receivables is made by debiting the accounts receivable account and crediting the sales account. 

Kinds of journal entries for accounts receivable

There might be several journal entries pertaining to different transactions. The basic and common journal entries relating to accounts receivables are shown below.

1.  Journal entry for credit sales

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ParticularsDebitCredit
Account Receivables A/cXXX
To Sales A/cXXX

2.  Journal entry for cash received in full for credit sales

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

3.  Journal entry for cash received for credit sales after-sales discount

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

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

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

5.  Journal entry recording credit sales as a bad debt – i.e. debt that cannot be recovered

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

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

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

Are accounts receivable a debit or credit in books of accounts?

Account receivables show the company’s risk in the form of cash inflow in the near future. It implies that the company will benefit from this risk in the future in the form of cash payments that are in the form of receivables.

Hence, the question of whether accounts receivables debit or credit is straightforward – Accounts receivable must be debited and will be part of the current assets on the asset side of the company’s balance sheet.