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In short, correct it. How did you get a credit balance in A/R? If customers overpaid their bills, you should set up a liability account called Refunds Due and move the balance there. If the payments are deposits on future orders, you should have a Customer Deposits liability account. If they are payments in advance, you need an Unearned Income account. Perhaps you have un-recorded sales. It depends on the nature of the paymants posted to Accounts Receivable when there was no receivable in the first place.
I have to say that I don't entirely agree with this answer. I do agree that the first step is to find out exactly WHY you have a credit balance in your Account Receivable. Once this is established, how to correct it, or even temporarily leave it, depends on the reason it's there.
First let's say John Q Public is your customer and he owed you $500, however he accidentally pays you twice and you record the transaction, giving this AR a credit balance of $500. Your best option is to issue a refund for the amount, however, there is no sense in creating an obsolete or useless account such as "refunds due". Instead issue a refund in the amount of $500 debiting the Account Receivable - John Q Public for $500 and crediting Cash.
If, as stated in the first answer, it's payment on a future order, as he called it, deposits, it would still be listed as "unearned income or revenue" For example, John Q Public wants to pay for $500 in watches, however the watches will be shipped 30 days later. You will Debit your Cash and Credit your Unearned Revenue (Income) not some obsolete account called Customer Deposits. Once the order ships, you will then Debit the unearned revenue bringing the balance down to zero while crediting Revenue.
Now lets go back to the accidental overpayment. Say John Q Public did overpay his bill and your company wants to give him credit for the overpaid balance, leaving the credit balance in Accounts Receivable is perfectly acceptable. Since each AR will be unique to the customer, then there is no reason to move the credit balance to any other account. In your General Ledger each AR will be represented by the name of the customer, for example two customers with AR accounts won't be grouped into one account, they will be separated, for example AR - Customer A and AR- Customer B
Let's say Customer A has a credit balance in his AR account of $500 and he then places a credit order of $1500, when it is recorded, it will show that he had a credit balance and therefore now only owes $1,000. Moving the balance from account to account is pointless and time consuming.
I have to note that "unrecorded sales" would not effect your Account Receivable.
Out of all of this, first things first, check all Credit Sales Receipts pertaining to said customer to make sure all entries we recorded accurately, perhaps it was a transposition of numbers, for example John Q Public paid $580 dollars for his AR and it was transposed and recorded as $850, if this is the case, simply correct the numbers with a note as to why the entry has been altered.
Wiki User
∙ 14y ago
Wiki User
∙ 9y agoWhen goods are sold to customers on credit then it generates the Accounts receivable which is current asset of company and that's why it is shown in current asset section of balance sheet.
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Where does accounts receivables go on an income statement?
Account receivables only appear on Balance Sheet.
How do you account for receivables on the income statement?
Receivables are not part of income statement rather these goes to balance sheet as these are future activities.
What is the normal balance of an account in the accounts payable subsidiary ledger?
Accounts receivables has debit balance as normal balance of account and shown in current assets in balance sheet.
Where does accounts receivable go on a multi step income statement?
Accounts receivables would be included in the balance sheet. The income statement reports revenues and expenses. Accounts receivables is an asset account and all the asset, liablities and equity accounts are reported on the balance sheet.
Where do accounts receivable go on the balance sheet?
Paid accounts receivable appears on a balance sheet, to the extent that the amounts paid are deducted from the accounts receivables balance and added to the bank account. Therefore, the effect on the balance sheet would be as follows: decrease in asset- accounts receivables increase in asset- Cash
Where is the accounts receivables located on the balance sheet?
Accounts receivable is located on the left side of the balance sheet under the current assets.
What accounts are balance sheet accounts?
A balance sheet account is any item that is found on the financial statement known as the balance sheet. The figures reflected on the balance sheet, consist of the ending balance of the balance sheet account. After all the transactions are posted in the individual balance sheet account's "T" account (involving debits and credits), the ending balance is the amount found on the balance sheet.
Would a credit entry to the accounts receivable ledger account would make the balance?
No! Accounts receivables is treated as an asset element in the balance sheet, and crediting an asset means decrease in asset.
Why bad debts comes on asset side?
The Allowance for Doubtful Account is on the asset side of the balance sheet because this account is a contra account to accounts receivable. In accrual accounting there is an assumption that not all receivables will be paid.
Receivables from company officers and employees should be disclosed separately on the balance sheet?
Receivables from employees and officers should be listed separately on the balance sheet due to most receivables are from sales. This allows outside stakeholders to see an accurate picture on the company's ability to collect on credit sales.
Which part of the accounting equation does a sale on account effect?
by sale on account you mean goods sold to the costumer but the cash was not received immediately. the accounting equation for credit sales is to CR the revenue/sales/turnover in your income statement. DR the receivables account on the balance sheet. after the cash is received. CR the receivables account. DR the cash account.
Would a credit entry to the accounts receivable ledger account would make the balance increase?
No! Accounts receivables is treated as an asset element in the balance sheet, and crediting an asset means decrease in asset.
