Order to cash: from a yes to money in the bank
From a quote to cash in the bank, as one company runs it: which steps touch the books, and why an invoice, a payment and revenue are three different events.
Order to cash is everything between a customer saying yes and the money landing in your bank account. For a founder it's the part of the back office that decides whether revenue becomes runway. The accounting track booked Northwind's first invoice in September: $22,000 to a trade customer, Alder Hardware, on 30-day terms. This track follows that invoice, and the ones after it, all the way to cash.
- QuoteA price offered. No entry.
- OrderA commitment. Backlog, not revenue.
- DeliverGoods delivered; control passes.
- InvoiceDr AR, Cr revenue (or deferred revenue).
- CollectReminders on a schedule.
- ApplyDr cash, Cr AR, matched to invoices.
- ReviewAging, DSO, the allowance.
An invoice is a claim, a payment is cash, and revenue is recognition. Three events, often on three dates, and books that merge any two of them get something wrong.
The three dates on Northwind's first invoice
Alder's goods were delivered and invoiced on September 15, so the revenue was earned that day and the receivable was booked with it (JE-7). Alder paid $14,000 on September 22 (JE-10). That entry moves a receivable into cash and never touches revenue. The remaining $8,000 was due on October 15, 2026.
A trade customer is invoiced $22,000, payable in 30 days.
| Account | Debit | Credit |
|---|---|---|
| 1200Accounts receivable | 22,000.00 | |
| 4000Revenue | 22,000.00 | |
| Balanced | 22,000.00 | 22,000.00 |
The goods are delivered, so the revenue is earned — in September, not in October when the money turns up. What is owed sits in accounts receivable. No sales tax: the trade customer buys to resell, and has given Northwind a resale certificate saying so.
The trade customer pays $14,000 of the September invoice.
| Account | Debit | Credit |
|---|---|---|
| 1000Cash — operating | 14,000.00 | |
| 1200Accounts receivable | 14,000.00 | |
| Balanced | 14,000.00 | 14,000.00 |
No revenue here either — that was recorded on the 15th. A receivable turns into cash, and the income statement never hears about it.
The invoice and the collection, from the September book.
One account in the ledger, one line per invoice underneath
Account 1200 is a control account. The general ledger holds one balance, and the detail (which customer, which invoice, how old) lives in the AR subledger. At September 30 the subledger had one open invoice with $8,000 on it, and the control account said the same. Every report in this track, from the aging to DSO, reads the subledger, so the first control you need is that the two agree.
1200Accounts receivable
| Debit | Credit |
|---|---|
| JE-722,000.00 | JE-1014,000.00 |
| Total22,000.00 | Total14,000.00 |
Balance 8,000.00 on the debit side — the difference between the two columns.
Invoices from the accounting system (QuickBooks Online, Xero)
- Good at
- The invoice and the receivable are the same record
- Aging and statements built in
- Watch for
- Manual dunning
- Reconciling payments by hand
- Best for
- A handful of B2B customers a month
A billing platform with card on file
- Good at
- Charges the card on file on the due date
- Can retry a failed payment automatically
- Watch for
- Payouts arrive net of fees and need a gross-up
- Another subledger to tie out
- Best for
- Subscriptions and self-serve
Customer portals (the customer's AP system)
- Good at
- Required by some large buyers
- Payment status is visible
- Watch for
- Slowest to cash
- Every invoice must match the customer's PO
- Best for
- Enterprise customers with procurement
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- US GAAP
- ASC 606-10-05-3, -05-4; 606-10-25-23, -25-30 (opens in a new tab)Revenue from Contracts with Customers — the core principle, and recognition when control transfersFree after registration
- ASC 606-10-45-4 (opens in a new tab)A receivable is an unconditional right to considerationFree after registration
- ASC 310 (opens in a new tab)ReceivablesFree after registration
- Background reading — not an authority
- Wikipedia, “Accounts receivable” (opens in a new tab)Accounts receivableFree to read
The full map is in US GAAP, and where these rules come from.
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Accounts receivableWhat customers owe us for invoices already issued
- InvoiceA claim on a customerConvention
- Control accountA GL account whose balance is the total of a subledger — AR, AP, fixed assets — and is posted only from itConvention
- SubledgerThe detail, by customer, vendor or asset, whose total must equal its control account in the GLConvention
- Revenue recognitionDeciding when, and how much, revenue is recorded — under US GAAP, when (or as) control of a promised good or service transfers to the customer, at the consideration the entity expects to be entitled to
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.
See also
- Order to cash (AR)The receivables stack from quote to revenue: quote → order → fulfillment → invoice → collection → cash application → revenue.
- 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.
- Accounts payable vs accounts receivableAccounts payable is what the company owes its suppliers, and it sits with the liabilities. Accounts receivable is what customers owe the company, and it sits with the assets.
- Accrual basis vs cash basisCash basis books revenue and expenses when money moves. Accrual books them when they're earned or incurred, so a year of insurance paid up front is one month's expense on cash basis and a twelfth a month on accrual.
- What to put on an invoice: a field-by-field guideThe fields a B2B invoice needs to get paid on time: legal names, a numbering sequence, dates, terms, tax lines, PO and remit-to, and how to fix one.
- AR aging and collections: a practical guide for startupsHow to read an AR aging, work out DSO, run a dunning cadence, record a promise to pay, escalate a late account and clear unapplied cash.
- Accrual basisThe method that records revenue when it's earned and expenses when they're incurred, whatever day the cash moves.
- InvoiceRegisterGapless-numbering check surfaced.
- InvoiceDetailBalance due as the hero, not total.
- PaymentStatusTimelineSubmitted → sent → settled, with real timestamps.