The finance team should review all accounts regularly, looking for discrepancies or unusual activity. If your team identifies an overpayment, determine if it can be reconciled with another invoice or refunded to the customer. Correctly allocate all payments to the proper account, and apply refunds or credits against open invoices. The A/R team should reconcile payments as soon as they are received and record any discrepancies. Reconcile Paymentsįinancial statements often offer one of the best benchmarks for your records. Remember that collections and accounting are separate skill sets, so ensure you assign the best persons to each role. Regular training can prevent data entry errors and ensure that all staff members have the same understanding of accounting procedures. Ensure they are also familiar with any other software or technology used for financial transactions. Your A/R team should understand the principles of double-entry bookkeeping, how to reconcile accounts, and how to record payments correctly. Even so, there are steps you can take to significantly reduce the possibility of negative balances and other accounting errors. Mistakes do happen, and no solution will completely eliminate errors. How To Reduce the Likelihood of Negative Accounts Receivable on Balance Sheet The A/R team credits this extra amount to the account, resulting in a negative balance. For example, a customer pays an invoice of $100 but accidentally sends an additional $50 in payment. If there is no way to reconcile this amount with another invoice or account, it can lead to a negative A/R balance. The extra amount is usually recorded as an asset when a customer overpays an invoice. Failure to communicate this to the A/R team could create a $5,000 discrepancy in accounting records. The account manager settles the dispute by extending a credit of $5,000 that the customer can use on the next order. For example, a customer orders 500 items and receives 450 due to an inventory management error. Failure to communicate this with the A/R team could create a negative balance. Sometimes, companies extend additional credit as compensation or a bonus. If not treated correctly, this payment could create a large negative balance. She pays the outstanding balance of $150,000 in full. During this time, a new manager takes over and makes it a priority to settle debts. For example, a customer has an outstanding debt for 120 days and has yet to respond to requests for payment. If you later receive payment, it can lead to an account with a negative balance. Your accountant might record a payment as a write-off if they believe the customer will not be able to pay off the debt. If you record this as a debit before generating an invoice, it could create a negative balance. For example, a customer might choose to pay when he orders. But if the amount is not applied to an invoice or deducted from their total outstanding balance, this can lead to a negative account balance in your books. If a customer makes a prepayment for goods or services, someone may record the amount as part of accounts receivable on the balance sheet. It can also happen when a customer is credited with too much money, leading to an overpayment that is not deducted from their total outstanding balance. For example, someone on the A/R team could have transposed numbers, entered a transaction for the wrong account, or extended credit to the wrong account. Data Entry Errorsĭata entry errors can happen if the user forgets to record a payment or enters it in the wrong column on the worksheet. Consider whether the following reasons apply to your financial records. Several reasons might account for why you have a negative account balance. That’s because the credit and debit entries should balance each other out. So, how can it lead to a negative accounts receivable balance? The Main Factors That Create Negative A/R Balancesīalance sheets must add up to a net balance of zero. Accountants record this uncollected income as a normal debit balance or asset. In other words, it is the amount of money owed to a business by its customers for goods or services provided but for which it has not received payment. An accounts receivable balance refers to a company’s outstanding invoices that customers have not yet settled.
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