Accounts receivable journal entries follow a small set of debit-and-credit patterns: you debit accounts receivable and credit sales revenue when you sell on credit, then unwind that receivable with matching entries as returns, discounts, payments, and write-offs happen. Every credit transaction fits one of these patterns, and once the entry is in the general journal it gets posted to the individual customer’s page in the subsidiary ledger so the balance on any account is always current.
Information You Need Before You Post
Every credit transaction pulls the same handful of data points from the sales invoice or credit memo: the customer’s legal name or unique account ID, the invoice number, the transaction date, the total amount owed (including any sales tax or shipping), and the payment terms. The IRS doesn’t mandate a particular recordkeeping format, but your books must clearly show income and expenses and tie each entry back to supporting documents like invoices and contracts.1Internal Revenue Service. Recordkeeping
The transaction date does more work than it looks like. It sets when the receivable starts aging, when payment comes due, and which reporting period captures the revenue. Payment terms shape the later entries as well. “Net 30” simply means the customer has 30 days to pay in full. “2/10 Net 30” offers a 2% discount if the customer pays within 10 days, and that discount gets its own line in the payment entry when the customer takes it.
The Core Credit Sale Entry
When you deliver goods or services on credit, debit accounts receivable and credit sales revenue for the same amount. The debit increases your current assets, since the customer now owes you money. The credit recognizes the income you earned. Under the accrual method, you record this income when you earn it, not when the customer actually pays.2Internal Revenue Service. Publication 538 – Accounting Periods and Methods Under ASC 606, “earned” means you’ve satisfied the performance obligation — you’ve transferred control of the product or completed the service, not just signed the contract.3Deloitte. Roadmap Revenue Recognition – Step 5 Recognize Revenue
Every entry also needs a short description referencing the invoice number, customer name, or contract. It feels like busywork until someone needs to trace a discrepancy six months later, and that someone is usually you.
When Sales Tax Applies
If the sale involves sales tax, the entry picks up one more line. Debit accounts receivable for the full amount the customer owes (the sale price plus the tax), then split the credit side: credit sales revenue for the pretax amount and credit sales tax payable for the tax portion. Sales tax payable is a liability, not income, because you’re collecting that money on behalf of the taxing authority and will remit it later.
Returns and Allowances
When a customer returns a product or you grant a price reduction, you reverse part of the original sale. Debit sales returns and allowances, which reduces your revenue, and credit accounts receivable, which reduces what the customer owes. The original sale entry stays intact in the journal, so the audit trail is complete; the return entry shows exactly what changed and when.
Early Payment Discounts
If you offered 2/10 Net 30 terms and the customer pays inside the discount window, the gross-method entry has three lines. Debit cash for the amount received, debit sales discounts for the discount, and credit accounts receivable for the original invoice amount. On a $1,000 invoice with a 2% discount, that’s a $980 debit to cash, a $20 debit to sales discounts, and a $1,000 credit to accounts receivable. Sales discounts appears on the income statement as a reduction of revenue.
Some businesses use the net method instead, recording the sale at the discounted price from the start and adjusting only if the customer pays late. Either method is acceptable as long as you apply it consistently. The gross method is more common because it lets you see exactly how much revenue you’re giving up through discounts.
Recording the Customer’s Payment
When the customer pays the invoice (with no discount involved), debit cash and credit accounts receivable. The entry reduces the receivable and increases your available cash. Simple as it looks, this is where errors accumulate if payments aren’t applied to the right invoices. A payment posted to the wrong customer throws off two balances at once and creates reconciliation work later.
Writing Off Uncollectible Accounts
Not every customer pays. GAAP requires most businesses to estimate uncollectible accounts and record that estimate before you know exactly which invoices will default. Two accounts do the work: bad debt expense (an income statement account) and allowance for doubtful accounts (a contra-asset that reduces accounts receivable on the balance sheet).
The Periodic Allowance Entry
At the end of each reporting period, debit bad debt expense and credit allowance for doubtful accounts for your estimate. Recording the entry at period end puts the expense in the same period as the revenue that generated the receivable. One common way to calculate the amount is the aging method: assign an estimated uncollectible percentage to each aging bucket (for example, 1% for current, 5% for 31–60 days, 15% for 61–90 days, and 40% for over 90 days), multiply each bucket’s total by its percentage, and sum the results to get your target allowance balance.
Writing Off a Specific Customer’s Balance
When you determine that a specific customer’s balance won’t be collected, debit allowance for doubtful accounts and credit accounts receivable. Bad debt expense doesn’t appear here. You already recorded the expense when you estimated the allowance, so the write-off just moves the loss from “estimated” to “confirmed” without hitting the income statement a second time.
If a Written-Off Customer Later Pays
Reverse the write-off first: debit accounts receivable and credit allowance for doubtful accounts. Then record the payment normally: debit cash and credit accounts receivable. The two-step approach keeps the customer’s history complete and puts the recovery through the correct accounts rather than shortcutting straight from cash to the allowance.
Posting to the Subsidiary Ledger
The general journal records everything in chronological order, which is useful for seeing what happened on a given day and terrible for answering “how much does Customer X owe?” The accounts receivable subsidiary ledger solves that. It organizes the same transactions by individual customer, so every credit sale, return, discount, and payment for one account appears on one page with a running balance.4Legal Information Institute. Accounts Receivable
After each general journal entry, post it to the affected customer’s page in the subsidiary ledger. A new credit sale increases the customer’s balance; a payment, return, or write-off decreases it. The combined total of every customer balance in the subsidiary ledger should always equal the accounts receivable control account balance in the general ledger. If it doesn’t, something was posted incorrectly, and the sooner you catch it the easier the fix.
Reconciling the Control Account
At least once a month, verify that the total of all individual customer balances matches the accounts receivable control account. When the numbers don’t match, the usual culprits are entries posted to the wrong customer, journal entries that never made it to the subsidiary ledger at all, and simple math errors. Trace the discrepancy back to the source document (the invoice, payment receipt, or credit memo) and correct the posting. Reconciling monthly is far less painful than letting differences pile up to quarter-end or year-end, and consistent reconciliation documentation is what auditors and lenders look for as evidence of functioning internal controls.
What the Subsidiary Ledger Drives
The individual customer records aren’t just bookkeeping — they run your day-to-day collection work. You reference them when a customer disputes a charge, when you’re deciding whether to extend more credit, and when you generate monthly statements. They also feed the aging report, which groups outstanding invoices into time buckets (typically 0–30 days, 31–60, 61–90, and over 90 past due) and drives your bad debt estimate. If the subsidiary ledger is sloppy, everything built on top of it will be too.