Free course · Lesson 5 of 12 · 11 min
Recording sales, invoices and customer payments
How a sale moves through the books: the invoice, the payment, the bank deposit, card fees and refunds, with the debit and credit for each step.
Bookkeeping Basics / Lesson 5
- Choose between a sales receipt and an invoice.
- Record an invoice, the customer's payment and the deposit.
- Handle card processing fees, refunds and credit memos.
- Use the accounts receivable aging to collect what you are owed.
Paid now or paid later
If the customer pays on the spot, record a sales receipt: income and money received in one step. If the customer will pay later, record an invoice: income now, and an amount owed to you in accounts receivable until they pay.
| Situation | Document | Debit | Credit |
|---|---|---|---|
| Customer pays $150 at the counter | Sales receipt | Bank (or Undeposited funds) $150 | Sales $150 |
| You finish a $2,400 job, payment due in 30 days | Invoice | Accounts receivable $2,400 | Service income $2,400 |
| The customer pays the $2,400 invoice | Payment | Bank (or Undeposited funds) $2,400 | Accounts receivable $2,400 |
What a good invoice shows
- Your business name and contact details, and the customer's.
- An invoice number (sequential, never reused) and the invoice date.
- What you sold: description, quantity, rate and amount for each line.
- Sales tax or GST/HST shown separately. In Canada, if you are registered, show your GST/HST registration number; customers need it to claim input tax credits.
- Payment terms (for example Net 30), the due date and how to pay.
Undeposited funds and the bank deposit
You often take several cheques and cash to the bank together, and the bank statement shows one deposit for the total. To make the books match, payments go first into a holding account, often called Undeposited funds, and a deposit then moves them to the bank in one entry.
| Step | Account | Debit | Credit |
|---|---|---|---|
| Payment from A | Undeposited funds | $400.00 | |
| Accounts receivable | $400.00 | ||
| Payment from B | Undeposited funds | $650.00 | |
| Accounts receivable | $650.00 | ||
| Payment from C | Undeposited funds | $1,150.00 | |
| Accounts receivable | $1,150.00 | ||
| Deposit | Bank | $2,200.00 | |
| Undeposited funds | $2,200.00 |
The bank shows one $2,200 deposit and so do your books, which makes the bank reconciliation in lesson 7 straightforward.
Card payments and processing fees
Card processors usually deposit the sale minus their fee. Record the full sale and the fee separately, so income is not understated and fees are visible.
A customer pays a $1,000.00 invoice by card. The processor charges 2.9% plus $0.30, which is $29.30, and deposits $970.70.
| Account | Debit | Credit |
|---|---|---|
| Bank | $970.70 | |
| Merchant fees (expense) | $29.30 | |
| Accounts receivable | $1,000.00 | |
| Totals | $1,000.00 | $1,000.00 |
Processor rates vary; the 2.9% plus $0.30 here is only an example. Your processor's monthly statement shows the real fees.
Refunds, credit memos and discounts
- Credit memo: you owe the customer money back or a credit, for example for returned goods. It reverses the income (debit sales or a returns account, credit accounts receivable) and can be applied to their next invoice.
- Refund: if you pay the money back, the credit memo is settled from the bank (debit accounts receivable, credit bank).
- Early-payment discount: if a customer takes 2% off for paying within 10 days, record the discount to a sales discounts account so the invoice closes in full.
Collecting: the accounts receivable aging
The A/R aging report lists who owes you money, grouped by how overdue it is: current, 1 to 30 days, 31 to 60, 61 to 90 and over 90. Look at it every week.
| Customer | Current | 1-30 | 31-60 | 61-90 | Over 90 | Total |
|---|---|---|---|---|---|---|
| Harbor Dental | $1,200 | $1,200 | ||||
| Lee Properties | $860 | $860 | ||||
| Ortiz Café | $450 | $300 | $750 | |||
| Total | $1,200 | $860 | $450 | $0 | $300 | $2,810 |
The older a debt, the less likely it is to be paid. Send a reminder as soon as an invoice is overdue, call at 30 days, and decide at 90 days whether to stop work or write the debt off as a bad debt.
Key terms
Try it
- Free invoice generator: Make a correct invoice with tax and terms.
- Invoice template: Download a blank invoice to fill in.
- How to collect overdue invoices: Reminder wording and a collection schedule.
- Recording card payments and fees: More on processor deposits.
Check your understanding
Pick an answer to see if it is right and why. Nothing is sent anywhere; your result is kept in this browser.
Part of Bookkeeping Basics, a free course from AcboBooks LLC. General information, not tax, legal or accounting advice. Last reviewed October 25, 2026.