Accounts Receivable Journal Entry – Debit or Credit

By Annapoorna

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Updated on: Oct 23rd, 2023

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4 min read

Accounts receivable refers to the balance owed to an enterprise by their customers for the sale of goods and services on credit. An accounts receivable journal entry is passed to account for the credit sales as well as to create a debtors' account, otherwise known as accounts receivable, in the books.

In this article, we explain the important accounts receivable journal entries.

What are accounts receivable journal entries?

Accounts receivables or AR are assets in the seller’s books, as the customer owes the sum of money against such sale of goods and services. Accounts receivables or trade receivables are 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

ParticularsDebitCredit
Account Receivables A/cXXX 
To Sales A/c XXX

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

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

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

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

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

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

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

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

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

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

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

Accounts receivable is the balance a company is owed from its debtors and is an asset for the company. The company will benefit from this asset in the future in the form of cash payments. Hence, like any asset, accounts receivable is a debit balance. It forms a part of the current assets on the asset side of the company’s balance sheet.
 

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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Quick Summary

Accounts receivable represents money owed by customers through credit sales, managed through journal entries. Entries include credit sales, cash receipt, sales discounts, bad debt, and profit/loss transactions. This asset is a debit balance on the company's books.

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