Journal entry for a customer short payment
Illustrative company · Accrual basis · USD · October 2026
The worked example
A customer owes $8,000 on an invoice due October 15, 2026. It pays $7,800, with a remittance note deducting $200 for two damaged units. The company checks the delivery record, agrees, and issues a credit note for the difference.
Transaction · October 14, 2026
JE-1 14 Oct 2026 Manual posted
Apply the cash to the invoice.
Read-onlyBalanced
Transaction · October 16, 2026
JE-2 16 Oct 2026 Manual posted
Issue the credit note for the agreed deduction.
Read-onlyBalanced
What the entries do to the accounts
Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.
| Account | Debit | Credit |
|---|---|---|
| 1000 Cash | 7,800 US Dollar | |
| 1100 Accounts receivable | 8,000 US Dollar | |
| 4100 Sales returns and allowances | 200 US Dollar | |
| Totals | 8,000 US Dollar | 8,000 US Dollar |
Why it is booked this way
The cash applies to the invoice it was sent for. What the customer deducted is still on the invoice until someone decides what it is: an agreed concession (a credit note), a disputed amount (left open) or an uncollectible one (a write-off against the allowance).
Each of those is a different entry with a different meaning, so the deduction carries a reason. A short pay never just disappears into a rounding account.
Common mistakes
- Writing off every short pay to bad debt, which hides price concessions and damaged goods in credit losses.
- Leaving the difference open with no reason, so collections keeps chasing a deduction the company already agreed.
- Crediting the whole invoice when only part of the cash arrived.
Questions
- Is a short pay the same as a partial payment?
- No. A short pay is a payment of less than the invoice with the difference deducted by the customer. A partial payment pays part and leaves the rest owed without dispute.
- Can I just write off the difference?
- Only when the customer won't pay and the amount is uncollectible. A deduction for damaged goods or a price concession is a credit note, because the customer doesn't owe it. A write-off says they owe it and won't pay.
Terms on this page
The lessons that teach this
From the free founder back-office course: each lesson is taught on one company's books, with the authority behind every rule.
- ARCash application: matching payments to invoicesMatching Northwind's receipts to its invoices: a short pay, a lump sum with no remittance, and a card payment that arrives net of the processor's fee.9 min
- ARA correct invoice, and the tax on itNorthwind's first invoices, field by field: what each one is for, where sales tax goes, and why a sent invoice is corrected with a credit note rather than edited.8 min
- ARPayment terms, discounts and late feesHow Net 30 sets a due date, what a 2/10 net 30 discount really costs, how to book it, and when a late fee is collectible.8 min
- ARBad debt: the allowance, the write-off and the tax returnNorthwind's allowance from its year-end aging, the write-off when a customer fails, why the tax return waits for the write-off, and how a credit note, a refund and a write-off differ.10 min
Work with this entry
The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.
- Which invoices make this deposit?Find which open items add up to a deposit, to the cent. Put your own figures in and get the schedule behind this entry.
- Accounts receivable, explained for foundersMoney customers owe you for work you've delivered and invoiced but haven't been paid for yet. It's an asset.
- Journal entry for a sale on accountFor a sale on credit, debit Accounts receivable and credit Revenue for the price; under a perpetual inventory system also debit Cost of goods sold and credit Inventory for what the goods cost. When the customer pays, debit Cash and credit Accounts receivable.
- Journal entry for a customer refundTo refund a paid invoice, issue a credit note (debit Sales returns and allowances, credit Accounts receivable), then pay the refund (debit Accounts receivable, credit Cash).
- Journal entry for writing off accounts receivableTo write off an uncollectible invoice under the allowance method, debit Allowance for credit losses and credit Accounts receivable. If the customer later pays, reinstate the receivable (debit Accounts receivable, credit Allowance) and record the cash.
- CashApplicationThe highest-value screen in AR. Every case is a first-class path.
- CreditNoteFormDistinct from a refund and from a write-off.
An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information, not tax, legal or accounting advice. Check with a CPA before you act on it.