Learn how to create accounts receivable journal entries, record payments, manage write-offs, and automate AR for accurate and easy cash flow tracking.
Shyam Agarwal 
Managing money coming in from customers is an important part of running a business. Accounts Receivable (AR) tracks this money and helps businesses plan cash flow.
Recording these transactions correctly keeps your books accurate. Did you know? IN 2023, 55% of all B2B invoiced sales in the United States were overdue. That indicated an ongoing issue with timely collection.
This blog will show how to create accounts receivable journal entries, record payments, handle the returns and discounts, and manage write-offs. What you will also learn is when a business collects an account receivable and how to update your records properly.
An Accounts Receivable (AR) journal entry is a record added in your accounting books that shows you all the money customers owe to your business. Every time a customer buys product or service on credit, pays for previous purchase, returns a product, or gets a discount, the person attending the books will make a journal entry.
These entries help businesses track payments, manage the cash flow, and keep financial records correct. A journal entry for accounts receivable shows:
If you maintain proper Accounts receivable journal entries, your business will quickly see how much money is expected and prevent errors in accounting.
A credit sale happens when a business sells goods or service to a customer but allows them to pay for it later. Recording this accurately is the first step in how to create accounts receivable journal entries.
When you make a credit sale, your Accounts Receivable, or known as asset, increases. Your Sales Revenue also increases with it. This is recorded using a journal entry for accounts receivable.
| Transaction | Debit | Credit |
|---|---|---|
| Credit Sale | Accounts Receivable | Sales Revenue |
Example:
A customer buys products that are worth $1,000 on credit.
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | $1,000 | |
| Sales Revenue | $1,000 |
This journal entry shows that the business has earned income and expects payment to come later.
When a customer pays the money that they owe you, the business receives cash and reduces the Accounts Receivable balance. Recording this properly will show you when a business collects an account receivable and keeps your financial records correct.
| Transaction | Debit | Credit |
|---|---|---|
| Customer Payment | Cash/Bank | Accounts Receivable |
Example:
A customer pays $2,000 for a previous credit sale.
| Account | Debit | Credit |
|---|---|---|
| Cash/Bank | $2,000 | |
| Accounts Receivable | $2,000 |
This entry clears the customer’s outstanding amount and updates your cash balance.
Sometimes, a customer may return products or receive a discount for early payment. In both of those cases, the Accounts Receivable balance needs to be reduced. Recording these accurately is an important part of how to create accounts receivable journal entries.
| Scenario | Debit | Credit |
|---|---|---|
| Sales Return | Sales Returns | Accounts Receivable |
| Sales Discount | Sales Discount | Accounts Receivable |
Example of Return:
Customer returns goods that are worth $100.
| Account | Debit | Credit |
|---|---|---|
| Sales Returns | $100 | |
| Accounts Receivable | $100 |
Example of Discount:
A customer gets a $50 discount because they paid early.
| Account | Debit | Credit |
|---|---|---|
| Sales Discount | $50 | |
| Accounts Receivable | $50 |
Both of these journal entries reduce the amount the customer owes and keeps your accounts receivable balance correct.
Sometimes, a customer cannot pay the money that they owe. In this case, you must remove that amount from your accounting books. That process is called a write-off, and it is important to know how to record accounts receivable write-off correctly.
| Transaction | Debit | Credit |
|---|---|---|
| Bad Debt Write-Off | Bad Debt Expense | Accounts Receivable |
Example:
A customer defaults on a $200 payment.
| Account | Debit | Credit |
|---|---|---|
| Bad Debt Expense | $200 | |
| Accounts Receivable | $200 |
This journal entry reduces the Accounts Receivables balance and records the loss as an expense. That keeps your financial records accurate.
Sometimes, a customer does pay the money that you had previously written off as bad debt. If this happens, you need to reverse the write-off first and then record the payment. This step is a part of how to create accounts receivable journal entries.
Step 1: Reverse the write-off
| Transaction | Debit | Credit |
|---|---|---|
| Reverse Write-Off | Accounts Receivable | Bad Debt Recovered |
Step 2: Record the payment
| Transaction | Debit | Credit |
|---|---|---|
| Customer Payment | Cash/Bank | Accounts Receivable |
Example:
A customer repays $200 that you had written off earlier.
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | $200 | |
| Bad Debt Recovered | $200 | |
| Cash/Bank | $200 | |
| Accounts Receivable | $200 |
These journal entries indicate that the debt has been collected, and your financial records are updated.
Manually recording every Accounts Receivable transaction can take a lot of your time. It can also lead to silly mistakes and admin errors. Automating this process makes it faster and more correct.
Modern accounting tools and software, like Quick Receivable, can automatically record journal entries for accounts receivable. This includes:
With automation, your accounting books stay updated, all in real time. It also reduces errors and frees up time for your finance team to focus on other important tasks.
Using automation makes sure that you know exactly how to create accounts receivable journal entries. It becomes easy, consistent, and correct every time.
Yes. If you offer an early-payment discount, you can adjust the accounts receivable balance when payment is received.
Correctly managing Accounts Receivable is important for any business. Knowing how to create accounts receivable journal entries, record payments, handle the returns or discounts, and managing write-offs keeps your financial records clear and reliable.
Get started with Quick Receivable today to simplify your Accounts Receivable, reduce errors, and stay on top of your cash flow effortlessly.
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