The fix: Contact the customer and inform them of the error, then create an accrued liability to level the balance sheet (just like with credit extensions or prepayments). Incorrect payment processing by the bank.Application of payments to the wrong invoice.Data entry errors on the part of the customer (similar to those listed above).If a customer pays more than the invoiced amount, this creates a negative account balance, and the company now owes the difference to the customer. The fix: Record a liability of equal value to the extended credit. But if accounts receivable professional records that credit without realizing the customer payment has also been recorded, the amount is deducted from the A/R balance.įor example, if an account paid $2,000 in receivables and you extended $500 in credit, the A/R balance would be negative $500. Your company may decide to extend credit to a customer when a product is defective or missing or if a service is delayed. The fix: To balance your books again, you must reverse the write-off and record the receipt of the new payment. However, should a long overdue account pay up after you’ve already reconciled the debt (we see this most often when a new manager takes over), their payment will create a negative accounts receivable balance. As they slide past their payment term dates by 30, 60, and 90 days, it’s a natural and healthy part of accounts receivable management to write off these expenses by debiting the bad debt and crediting your accounts receivable for the same amount. Sometimes, it may seem like a customer will never pay an overdue invoice. Then, the prepayment amount should be debited once the goods or services are delivered and the invoice is sent. The fix: Prepayment should be first recorded as a credit to a liability account. They’re recorded as liabilities.Īs such, logging a prepayment before the goods or services are invoiced creates a negative accounts receivable. Customer prepayments are not invoiced and are, therefore, not account receivables. Your prepayments were recorded as receivablesĪn account receivable is generated only once an invoice is created and sent to the customer. The fix: Implement a check-in during your monthly closing process to weed out potential data errors and/or automate your account receivable processes to eliminate human errors virtually. These errors may be common, but they can seriously disturb the numbers on your balance sheet - particularly if these errors go unchecked. Input dates incorrectly, changing the chronological order of transactionsĪnd so on.Posted a transaction to the wrong account. An account receivable professional may have accidentally: It’s a fact of life that manual data entry leads to errors. Invoicing and data entry errors Errors in journal entry postings
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