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Last edited Aug 2020 — 2 min read
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.
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.
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.
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