How to Record Accounts Receivable

Recording accounts receivable involves tracking all money owed by clients for goods or services provided to ensure accurate financial records and effective cash flow management. To do this, businesses first issue detailed invoices with client information, payment terms, and amounts due. Each invoice is then entered into the accounting system, where it becomes a recorded receivable. As payments are received, they are applied against the corresponding invoices, and any credits, discounts, or adjustments are updated

Issue the Invoice

The first step in recording AR is generating and issuing a proper invoice to your client.

Key elements to include:

• Invoice number: Unique for tracking and audit purposes.
• Client details: Name, address, and contact information.
• Description of goods/services: Clear and detailed.
• Invoice amount and taxes: Total due, including applicable taxes.
• Payment terms: Due date, late fees, and accepted payment methods.

Example: A contractor issues Invoice #101 for $2,500 for a completed kitchen renovation, due in 30 days.

Record the Invoice in the Accounting System

Once the invoice is issued, record it in your accounting software or ledger to reflect the receivable.

Journal Entry Example:

• Debit: Accounts Receivable $2,500
• Credit: Revenue $2,500

Tips:

• Use the invoice number as a reference.
• Record the invoice on the date it is issued, not the payment date.
• Automate this process to reduce errors.

Track Payments Against the Invoice

After recording, monitor when payments are received and update AR records accordingly.

Partial Payment Example:

• Invoice amount: $2,500
• Payment received: $1,500
• Remaining balance: $1,000

Journal Entry for Partial Payment:

• Debit: Cash/Bank $1,500
• Credit: Accounts Receivable $1,500

This ensures your ledger accurately reflects outstanding amounts.

Apply Credits or Adjustments

Sometimes clients may have prepayments, discounts, or returns that affect AR balances.

Example Adjustments:

• Early payment discount of $100
• Returned goods worth $200

Journal Entry Example:

• Debit: Sales Discounts $100
• Debit: Sales Returns $200
• Credit: Accounts Receivable $300

Adjustments help maintain accurate AR balances and prevent disputes.

Reconcile Accounts Receivable Regularly

Accounts receivable reconciliation ensures your AR records match actual payments received and bank statements.

Tips:

• Perform monthly reconciliation.
• Compare invoices, payments, and credits against the ledger.
• Investigate discrepancies immediately to avoid errors.

Example:

Maintain Documentation

Keep thorough records for all AR transactions, including:

• Copies of invoices sent
• Payment confirmations
• Adjustments and write-offs

This documentation is essential for audits, tax purposes, and internal reviews.

Use Automation Tools

Modern accounts receivable automation software simplifies AR recording by:

• Automatically creating invoices and journal entries
• Tracking payments and balances in real-time
• Sending payment reminders and alerts for overdue invoices

Examples: DepositFix helps businesses automate AR management and reduce errors.