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Credit Balance in Accounts Receivable

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Credit Balance in Accounts Receivable

Every now and then, you may be left with unusual account balances in your accounting records. One of these unusual types of account balances is known as a “credit balance”. But what does a credit balance in accounts receivable (AR) mean? Find out more with our comprehensive guide to AR credit balances.

What does a credit balance in accounts receivable mean?

Essentially, a “credit balance” refers to an amount that a business owes to a customer. It’s when a customer has paid you more than the current invoice stipulates. You can locate credit balances on the right side of a subsidiary ledger account or a general ledger account.

What causes an AR credit balance?

There are many different reasons why you could be left with a credit balance in account receivable. For example, it could be because the customer has overpaid, whether due to an error in your original invoice or because they’ve accidentally duplicated payment. It can also arise when a discount on goods or services is provided after an invoice is initially sent, or when a customer returns goods after already paying their invoice.

Sometimes, an AR credit balance isn’t the result of an error, but a planned move by a company or business entity. For example, if you’re experiencing cash flow problems, you may ask a customer to make a deposit for goods or services to be delivered in the future. After receiving advance payment, you’d need to mark it in accounts receivable as a credit balance.

Example of a credit balance in accounts receivable

To give you a little more insight into AR credit balances, let’s look at a situation where a credit balance in accounts receivable could occur.

Imagine Company A accidentally duplicated payment for a service you provided to them due to an accounting error. This would result in a credit balance of £10,000, appearing in your accounting records like so:

No.

Customer

Balance

1

Company A

(£10,000)

2

Company B

£2,000

3

Company C

£18,000

4

Company D

£7,000

5

Company E

£25,000

This means that Company A is an account payable, as money is owed to the customer, rather than the other way around.

Can you also have a “debit balance”?

Yes, in addition to credit balances, you may also encounter debit balances. Put simply, a debit balance is an amount that is owed to you by a vendor. There are a broad range of potential causes of debit balances. For example, you may have purchased materials from a vendor, but after receiving the materials, found that they were defective in some way. After returning the materials, the vendor may issue a credit memo, which gets recorded as a debit balance.

Managing your accounts receivable credit balance policy

It’s important to keep track of credit balances in accounts receivable. If you encounter AR credit balances on a regular basis, it may indicate that there’s a pattern of inaccurate billing from your accounting team. Once you’ve identified a credit balance, you need to work out what to do with it. In-depth guidelines should be outlined in your accounts receivable credit balance policy. If your client isn’t going to use the excess cash in their account, you can create a refund for them. You could also get in touch with the payee and offer upgrades or other services to justify the payment.

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Any credit balance in a vendor subsidiary account is an unpaid...

Any credit balance in a vendor subsidiary account is an unpaid… – Accounts payable are amounts which are owed by you to your suppliers for the purchase of trade goods or services, they are sometimes referred to as trade payables or trade creditors. Under normal circumstances, they are normally unsecured, and non-interest bearing.One of the problems I inherited is a balance in Accounts Payable on my General Ledger, from a prior year, that does not match my subsidiary ledger, and I need to reverse. Everything I have attempted to clear this balance requires me to enter a vendor, which I do not want to do!List the subsidiary's balance sheet and income statement information next to the parent's accounting data. This can be remedied with a debit to the subsidiary's common stock, paid-in capital in excess of par, and retained earnings accounts and a credit to the investment in stock of subsidiary…

Solved: Accounts payable in General Journal – Is your beginning balance off on your bank or credit card account? You can add or adjust your beginning balance with this technique. Don't miss a tip, Join…Trial balance accounting is significant in the preparation of final accounts. A tallied Trial Balance in trial balance accounting is the proof of the arithmetical accuracy of the ledger accounts though On the other hand, suppose he records the transaction in the subsidiary book but forgets to post it in the…These accounts normally have credit balances that are increased with a credit entry. In a T-account, their balances will be on the right side. A credit to a liability account increases its credit balance. To help you get more comfortable with debits and credits in accounting and bookkeeping, memorize…

Solved: Accounts payable in General Journal

How to Account for Subsidiaries: 9 Steps (with Pictures) – wikiHow – When you're just starting out, finding net-30 accounts from vendors who can help you build business credit can be tough. Here are three that can help.From the accounting side, most account software can separate each d.b.a. But is it wise to keep the monies separate for any reasons (tax, payment Providing you have a sound audit-trail, and record the payments in a cash-book and remittance file, together with any Journal or references your computer…The accounts receivable subsidiary ledger consists of an individual account for each customer who makes purchases on credit. The sum of all vendor account balances in the accounts payable subsidiary ledger is equal to the balance of the general ledger accounts payable control account.

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