Lessons · Accounting · a sale on credit and the receivable
A sale on credit: the receivable
When a customer will pay later, record the sale now and an asset called accounts receivable, which is the customer's promise to pay. When the cash arrives, swap the promise for cash.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
What it is for
You invoice 2,500 on the 28th and the customer pays on the 15th of next month. The owner sees profit up and the bank balance flat and asks how both can be true. The receivable is how.
How to think about it
Two entries, weeks apart. First: Dr Accounts receivable, Cr Sales revenue. Later: Dr Cash, Cr Accounts receivable. The sale is recorded once, on the first day.
Worked example
On invoicing: Dr Accounts receivable 2,500 / Cr Sales revenue 2,500The sale is earned now; the customer owes 2,500.
On payment: Dr Cash 2,500 / Cr Accounts receivable 2,500The promise is turned into cash. No revenue on this line; it was recorded on the first.
Receivable after payment = 2,500 − 2,500 = 0The customer owes nothing.
Your turn
The customer pays the 1,900 they were invoiced last month. Write the credit line.
Dr Cash 1,900 / Cr 1,900
Solve one, graded on the server
The trap
Recording the sale twice, once when invoiced and again when paid. Revenue doubles, the receivable never clears, and the customer's statement says they owe money they have paid.