Accounts Receivables Journal Entry

Before understanding accounts receivable journal entry, first explore term Accounts Receivable. Accounts receivable is amounts owed to the company by its credit customers and clients for services or goods provided. Sometimes a company sell to an individual on account, but more often transactions involving credit are business-to-business transactions. A receivable account can be created by someone who sells goods or services and extends a line of credit to its customers. The term Trade Receivable is also used in place of accounts receivable.

A company uses the accounts receivable account to record the amounts due from (legal claims against) charge customers. When goods or services are sold to a customer, and the customer is allowed to pay at a later date, this is known as selling on credit, and creates a liability for the customer to pay the seller. Conversely, this creates an asset for the seller, which is called accounts receivable. This is considered a short-term asset, since the seller is normally paid in less than one year.

An account receivable is documented through an invoice, which the seller is responsible for issuing to the customer through a billing procedure. The invoice describes the goods or services that have been sold to the customer, the amount it owes the seller (including sales taxes and freight charges), and when it is supposed to pay.