Received payment on account journal entry

Introduction

In business, receiving payment on account is a normal occurrence for the merchandising company as it usually makes the credit sale beside the cash sale in order to increase the sales during each period. Likewise, the company needs to make the received payment on account journal entry in order to recognize the cash payment received from its customers as a settlement of their previous credit purchases in the company’s record.

Additionally, the company may receive the cash payment from the customer’s account that has been already written off due to it having determined that it is highly likely that it will not receive the payment back. This usually happens to the accounts receivable that have long-overdue days.

The journal entry for received payment on account does not impact the income statement items as the company usually only records the items on the balance sheet for this case of the settlement of accounts receivable. Though, the impact on the balance sheet is that one asset increases while another asset decreases resulting in zero increases or zero decreases of the total assets as a whole.

And for the case of receiving the payment on account written off, the company needs to put back the customer’s accounts receivable that has been mistakenly written off first before it can make the journal entry to account for the cash payment received.

Received payment on account journal entry

The company can make the received payment on account journal entry by debiting the cash account and crediting the accounts receivable for the amount received.

This journal entry is made to settle the customer’s accounts receivable for the amount that the company has received from the payment. Likewise, there is zero impact on the total assets of the balance sheet as one asset increases, another asset decreases in the same amount.

Received payment on account example

For example, on November 1, the company ABC make a credit sale of $2,000 of goods to one of its customers. Later, on November 30, the company ABC receives the cash payment on account for the $2,000 credit sale that it has made on November 1.

In this case, the company ABC can make the journal entry on November 1 to record the credit sale as below:

Credit sales on November 1:

This journal entry is made to record the credit sale that the company ABC has made on November 1. Likewise, in this journal entry, total assets on the balance sheet as well as total revenues on the income statement increase by $2,000 as of November 1.

Later, on November 30, it can make the journal entry for received payment on account by debiting the $2,000 amount into the cash account and crediting the same amounting to the accounts receivable.

Received payment on November 30:

This journal entry is made to remove the $2,000 of the customer’s receivables that it has recorded on November 1 for it has already received the payment of this amount on November 30. Likewise, while the cash account increases by $2,000 in this journal entry, another asset which is accounts receivable decreases by the same amount of $2,000 as of November 30, resulting in the total assets on the balance sheet staying the same from this transaction.

Received cash payment on account written off

Sometimes, the company may receive the cash payment from the customer’s account that it has previously written off. If this is the case, the company needs to reverse the original written-off transaction first before making the journal entry the received payment on account.

Likewise, there will be two journal entries in this case; one is to reverse the write-off journal entry and another is to make the journal entry for the cash payment received on account that has been written off.

In this case, the company can make the journal entry for received cash payment on account written off as bellow:

Reverse write-off entry:

This is journal entry is made to reverse the original write-off entry as the company needs to put back the accounts receivable of the customer to the balance sheet first in order to make the journal entry for the received cash payment.

Likewise, the second journal entry for the received cash payment on account written off is the same as the received payment on account journal entry.

Received cash on account:

Received cash payment on account written off example

For example, on November 30, the company ABC receives a $1,000 cash payment from one of its customers for the credit sale it made in the previous year. However, the accounts receivable of the customer has already been written off due to the long-overdue nonpayment.

In this case, the company ABC needs to reverse the write-off entry first before it can make the journal entry to account for the $1,000 cash received.

Hence, the journal entries for this transaction of the $1,000 cash received on account written off on November 30, are as follow:

Reverse write-off entry:

In this journal entry, there is still zero impact on the total assets on the balance sheet. This is due to the allowance for doubtful accounts is a contra account to the accounts receivable. Likewise, the increase of $1,000 in the accounts receivable and the increase of the same in the allowance for doubtful accounts will result in a zero (1,000 – 1,000) increase or zero decrease in total assets on the balance sheet.

Received cash on account:

The impact on this journal entry is still zero on the total assets of the balance sheet as it increases the cash account by $1,000 and decreases the accounts receivable by the same amount of $1,000.