Accounts Receivable — Accounting Entries
Learn how to record customer invoices, receipts, advances, credit notes,
foreign-currency transactions, doubtful debts and other common accounts
receivable transactions through practical journal entries.
Each scenario explains the business situation, the accounting entry and
the reason behind it.
GST/VAT and other taxes are excluded unless specifically stated.
Actual accounting treatment depends on the applicable accounting framework,
contractual terms and company policies.
Recording a Customer Invoice
Situation: A company provides services worth ₹1,00,000
to a customer and raises an invoice. The customer will pay later.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Accounts Receivable — Customer | 1,00,000 | — |
| Service Revenue | — | 1,00,000 |
Why this entry?
- The customer owes the company ₹1,00,000, so accounts receivable increases.
- The company has earned revenue by providing the service, assuming the revenue recognition criteria are met.
for the company and recognizes the related revenue when appropriate.
Receiving Payment from a Customer
Situation: The customer pays the outstanding invoice of
₹1,00,000 directly into the company’s bank account.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Bank | 1,00,000 | — |
| Accounts Receivable — Customer | — | 1,00,000 |
Why this entry?
- Cash in the bank increases, so Bank is debited.
- The customer’s outstanding balance decreases, so Accounts Receivable is credited.
It does not create revenue a second time because revenue was recognized when earned.
Recording an Advance Received from a Customer
Situation: A customer pays an advance of ₹30,000 before
the company delivers the goods or services.
Entry 1 — When the advance is received
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Bank | 30,000 | — |
| Customer Advances / Contract Liability | — | 30,000 |
Entry 2 — When the company earns the revenue
Assume the company subsequently delivers the contracted services and
recognizes revenue of ₹30,000.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Customer Advances / Contract Liability | 30,000 | — |
| Service Revenue | — | 30,000 |
Why this entry?
- At receipt, the company has cash but may still owe goods or services to the customer.
- The advance is generally recorded as a liability until the relevant performance obligations are satisfied.
- Revenue is recognized when the applicable revenue recognition criteria are met, not simply because cash is received.
revenue. If an invoice and receivable are also recorded, apply the advance
against the receivable separately to avoid recognizing revenue twice.
Issuing a Sales Credit Note
Situation: A company issued a customer invoice for
₹1,00,000. Later, it grants a price reduction of ₹10,000 and issues a
credit note.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Sales Returns / Revenue Adjustment | 10,000 | — |
| Accounts Receivable — Customer | — | 10,000 |
Why this entry?
- The credit note reduces the amount the customer owes.
- The revenue adjustment reduces the original sales amount.
receivable and the related sales amount. The exact account depends on
whether the credit relates to a return, discount, pricing correction
or another adjustment.
Recognizing Revenue Before Invoicing
Situation: A company has completed services worth
₹40,000 by month-end. The revenue recognition criteria are met, but the
customer invoice has not yet been issued.
Entry 1 — At month-end
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Unbilled Receivable / Contract Asset | 40,000 | — |
| Service Revenue | — | 40,000 |
Entry 2 — When the right to payment becomes unconditional and the invoice is issued
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Accounts Receivable — Customer | 40,000 | — |
| Unbilled Receivable / Contract Asset | — | 40,000 |
Why this entry?
- Revenue may need to be recognized before invoicing if the applicable criteria are met.
- Depending on the contract and applicable standards, the amount may be classified as a contract asset or another appropriate unbilled asset.
- When the right to payment becomes unconditional, the amount is generally reclassified to Accounts Receivable.
invoicing can differ. The asset classification depends on the company’s
contractual right to payment and the applicable accounting framework.
Reconciling a Customer Account Mismatch
Situation: The company’s ledger shows that a customer
owes ₹1,00,000, but the customer confirms that only ₹90,000 is outstanding.
Investigation reveals that a customer payment of ₹10,000 was received
in the bank but was not recorded in the accounting system.
Correcting entry
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Bank | 10,000 | — |
| Accounts Receivable — Customer | — | 10,000 |
Why this entry?
- The payment has already been received, so it must be reflected in the books.
- Recording the receipt reduces the customer’s outstanding balance to ₹90,000.
invoices, credit notes, receipts and remittance details. If the difference
is only a timing issue or an error in the customer’s records, do not post
an unsupported adjustment just to force a match.
Recording a Foreign-Currency Customer Invoice
Situation: An Indian company invoices a foreign customer
for USD 1,000. The exchange rate on the transaction date is ₹83 per USD.
The company’s functional currency is INR.
Invoice value in INR: USD 1,000 × ₹83 = ₹83,000.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Accounts Receivable — Foreign Customer | 83,000 | — |
| Sales / Service Revenue | — | 83,000 |
Why this entry?
- The customer receivable is initially recorded using the applicable exchange rate on the transaction date.
- The revenue is recorded in the company’s functional currency.
denominated in USD in the customer subledger, while the general ledger
records its INR equivalent. Subsequent exchange-rate movements can change
the INR value of the outstanding receivable.
Recording a Foreign-Exchange Gain on a Receivable
Situation: The company has an outstanding customer
receivable of USD 1,000 originally recorded at ₹83 per USD, or ₹83,000.
At the reporting date, the applicable closing rate is ₹85 per USD.
Closing value: USD 1,000 × ₹85 = ₹85,000.
Foreign-exchange gain: ₹85,000 − ₹83,000 = ₹2,000.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Accounts Receivable — Foreign Customer | 2,000 | — |
| Foreign-Exchange Gain | — | 2,000 |
Why this entry?
- The customer still owes USD 1,000.
- Because the exchange rate has increased, the receivable is worth more in INR.
- The increase is recognized as a foreign-exchange gain when required by the applicable accounting rules.
the INR value of the receivable decreases and a foreign-exchange loss
may arise. Settlement-date differences may require a further gain or loss.
Writing Off a Bad Debt
Situation: A customer owes ₹5,000. After appropriate
review and approval, the company concludes that the amount is uncollectible.
An allowance for expected credit losses of at least ₹5,000 has already
been recognized for this receivable.
Write-off entry
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Allowance for Expected Credit Losses | 5,000 | — |
| Accounts Receivable — Customer | — | 5,000 |
Why this entry?
- The receivable is removed from the books because it is considered uncollectible under the applicable policy.
- The previously recognized allowance is used to absorb the write-off.
- No additional expense is recorded at the time of write-off if the existing allowance is sufficient.
an allowance. If no allowance exists, or the allowance is insufficient,
the accounting treatment depends on the applicable framework and policy.
A direct write-off entry may be appropriate only where permitted.
Recording an Expected Credit Loss Allowance
Situation: The company has customer receivables of
₹1,00,000. Based on its credit-risk assessment and the applicable accounting
requirements, the required closing allowance for expected credit losses
is calculated as ₹7,000. The existing allowance balance is ₹2,000.
Additional allowance required: ₹7,000 − ₹2,000 = ₹5,000.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Impairment Loss / Expected Credit Loss Expense | 5,000 | — |
| Allowance for Expected Credit Losses | — | 5,000 |
Why this entry?
- The company recognizes an additional expense for the estimated credit losses on its receivables.
- The allowance account increases to ₹7,000.
- The receivables are presented net of the applicable allowance where required.
collection losses before individual receivables are necessarily written
off. Under IFRS 9, expected credit losses are recognized using the
applicable ECL requirements. Other accounting frameworks may use different
terminology or measurement rules. The allowance must be based on the
company’s assessment, not an arbitrary percentage.