Accounts Receivable showing as negative on balance sheet and all invoices are paid Quicken

Hal had updated me on the work his Controller had done last year to collect receivables faster. I was curious to see what DSO looked like by month over the last fifteen months. I wanted to see if the big picture view of the numbers, DSO in particular, supported his conclusion about accounts receivable being in good shape. I interviewed the staff and quickly got a sense for how they were trying to collect those invoices – and why a shift in mindset and approach was needed.

(It means your accounts receivable balance on your balance sheet went down during the month.) Deciding whether that is good or bad requires that you look at what caused that to happen. If a customer pays more than the invoiced why is accounts receivable negative amount, this creates a negative account balance and the company now owes the difference to the customer. You will need to create an accrued liability to level the balance sheet, just like with credit extensions or prepayments.

Risks of Having a Negative Accounts Receivable Balance

To fix this negative balance you would prepare the following entry. There are specific scenarios when your team may decide to extend credit to a customer. For example, if a product is defective or service was delayed, it’s common to provide compensation. For instance, let us assume an organization gets an order from a customer to make some unique products. The sales department promises that the product will be shipped the next day, and the customer signs an order form agreeing to pay for them.

If you record this as a debit before generating an invoice, it could create a negative balance. When recording a prepayment or deposit, the payment isn’t an account receivable but a liability. In fact, a receivable is only generated once an invoice is created and sent to the customer. Logging a regular payment before the goods or services are delivered creates a negative accounts receivable. The prepayment should be first recorded as a credit to a liability account to remedy the situation. The prepayment amount should be debited once the goods or services are delivered and the invoice is sent.

The Effects of Accounts Receivable Negative

Financial statements often offer one of the best benchmarks for your records. The A/R team should reconcile payments as soon as they are received and record any discrepancies. Correctly allocate all payments to the proper account, and apply refunds or credits against open invoices. If your team identifies an overpayment, determine if it can be reconciled with another invoice or refunded to the customer. Your A/R team should understand the principles of double-entry bookkeeping, how to reconcile accounts, and how to record payments correctly. Ensure they are also familiar with any other software or technology used for financial transactions.