In accounting, what is the standard journal entry flow from generating a sales invoice to receiving payment from the customer?

Introduction / Context:
Revenue recognition and cash collection are central processes in financial accounting. Interviewers often ask candidates to describe the basic journal entries involved from the point a sales invoice is created until payment is collected from the customer. This question tests your understanding of how revenue, receivables, and cash accounts move during a typical credit sale.

Given Data / Assumptions:

• The company makes a credit sale to a customer and issues a sales invoice.
• No cash is received at the time of invoicing.
• At a later date, the customer pays the invoice amount through cash or bank.
• No discounts, bad debts, or other complications are included in this basic scenario.

Concept / Approach:
When a credit sale occurs, the company earns revenue and simultaneously creates a receivable from the customer. Therefore, Accounts Receivable (an asset) is debited and Sales revenue (an income account) is credited. When the customer pays, cash or bank increases and the receivable balance decreases. Thus Cash or Bank is debited and Accounts Receivable is credited. This two step flow reflects the movement from revenue recognition to actual cash collection.

Step-by-Step Solution:
Step 1: At the time of raising the invoice, identify that no cash is received yet but a legal right to receive payment is created. Step 2: Record a debit to Accounts Receivable to capture the amount that the customer owes. Step 3: Record a credit to Sales revenue to recognise the income from the sale. Step 4: At the time of payment, recognise that the customer is settling the outstanding receivable. Step 5: Debit Cash or Bank to show increase in company funds and credit Accounts Receivable to reduce the customer balance to zero.

Verification / Alternative Check:
If we look at the T account for Accounts Receivable, the debit entry at the time of invoice increases the balance, and the credit entry when cash is received reduces it. After full payment, the net balance for that invoice becomes zero. Similarly, Sales revenue shows only a credit entry, while Cash or Bank shows only a debit entry related to this transaction. This pattern confirms that the described journal entries are consistent and balanced.

Why Other Options Are Wrong:
Option B reverses the direction of debits and credits for revenue and receivables, which is incorrect. Option C treats invoicing as if cash were received immediately and misplaces the revenue recognition. Option D records the transaction as an expense rather than revenue and completely misstates the nature of the sale. None of these alternatives reflect the correct accounting treatment of a normal credit sale followed by payment.

Common Pitfalls:
Some learners confuse the treatment of cash sales and credit sales. Others reverse debits and credits for revenue and receivables. A clear mental picture of the balance sheet and income statement effects helps avoid such mistakes. Always remember that Accounts Receivable is an asset that increases with a debit, while Sales revenue is an income account that increases with a credit.

Final Answer:
The standard journal entry flow is: On invoicing, debit Accounts Receivable and credit Sales revenue; on receipt, debit Cash or Bank and credit Accounts Receivable.