Accounts Receivable Journal Entry

An accounts receivable journal entry is the recording of an accounts receivable transaction in the company’s records, typically a general ledger. These transactions are made on credit and when the invoice is paid it is then recorded in a collection of accounts receivable journal entry.

Key Components of an Accounts Receivable Journal Entry

To better understand how to record an accounts receivable journal entry, you’ll need to learn the different components used in most entries.

These components include:

• Date. The month and day that the transaction occurred.

• Debit and credit entries. Both the A/R and Sales Revenue account should be recorded in the company general ledger and increased by the same amount. The A/R account represents assets in which credit customers owe the company payments (e.g., debit account) while the Sales Revenue account represents income earned (e.g, credit account) for the goods or services.

• Amount. The dollar value of the transaction.

• Description. A short explanation of the transaction for future notice.

How to Record an Accounts Receivable Journal Entry

For example, if a technology company wanted to record that it sold $500,000 of its product, it would record $500,000 in its company general ledger as both a debit in its Accounts Receivables account and a credit in its Sales Revenue account.

How to Decrease an Accounts Receivable Journal Entry

When invoices are collected, customers return a purchase, or an error was made in the original invoice, the company must then record a decrease in an accounts receivable journal entry. This is also the case for when the invoice is uncollectible and the company must write off the accounts receivable as bad debt.

How to Write-Off an Accounts Receivable Journal Entry

If that same technology company was unable to collect payment from its customer, it would need to transfer it from accounts receivable to the bad debt expense account. Here is an example of a write-off in an accounts receivable journal entry for an uncollectible receivable for the amount of $500,000.

Best Practices for Managing Accounts Receivable Journal Entries

Understanding the details and components of accounts receivable journal entries are a first step to managing them, but you’ll also need to ensure your company is doing all it can to implement best practices for accounts receivable journal entries.

These best practices should include:

• Maintain consistency and accuracy in your records. Make sure all sales are recorded correctly, with all of the important components of an accounts receivables entry journal.
• Regular account reconciliation. Matching records with cash receipts helps you identify errors early and resolve them quickly, follow up with unpaid or overdue payments, leading to more accurate accounting records.
• Implement strict credit policies. Promote healthy account balances by carefully evaluating new customers for credit risk through pre-approved criteria and continuously monitor customer credit to proactively reduce the risk of bad debt and write-offs.
• Monitor aging reports. With consistent monitoring of aging reports, your A/R team should pick up on which categories of customers are most likely to be overdue. By proactively engaging with these accounts before the due date, you can reduce the risk of overdue payments and bad debt.

The Role of Automation in Recording Accounts Receivable Entries

While automatic A/R management platforms streamline the A/R process, send regular payment reminders and follow-ups, automate the cash application and credit application process and help resolve disputes quickly, Gaviti takes automation one step further. Not only does it automate repetitive, error-prone tasks, its autonomous invoice to cash A/R management platform also gives A/R teams the tools to execute high-level tasks that can’t be automated.

Its modules that deliver these tools include:

• A/R management. AI-powered fully personalized email and workflow building with unlimited segmentation that relies on proven strategies that are continuously optimized for success.

• A/R analytics. Get A/R reports updated in real time, including both team and individuals metrics and KPIs. Create your own custom reports and dashboards, with customizable views based on persona.

• Credit Management and Monitoring. Streamline credit management with automated online credit applications. Manage risk and credit threshold through easy-to-follow credit workflows, ongoing customer risk scores, and proactive flagging of risky clients. It includes an AI co-pilot that gathers information and makes suggestions regarding credit management and onboarding of new clients to minimize the risk of bad debt.

• Customer Self Service Portal. Enable customers to view all outstanding invoices in one place, easily engage with your A/R team and solve common requests independently. Offer multiple payment options for your customers that go directly to the bank account you choose.

• Cash application. Reduce errors and avoid disputes through remittance portal automation and AI-powered remittance auto-matching that matches 100% of payments paid through Gaviti’s Self-Service Portal.

• Dispute Management. Resolve disputes faster and reduce write-offs with fully customizable workflows for routing and tracking. Reduce future disputes with the ability to view trends and get both alerts of customer disputes — and their resolutions — in real time.

Want to get started ensuring more accurate accounts receivable records with Gaviti’s autonomous invoice to cash accounts receivable platform? Get a demo today! 

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