Collections, advances, and owner withdrawals
Objective: Record cash receipts that are not revenue.
Recommended first: Your first journal entries
Not every cash receipt is revenue. Collections from customers settle receivables. Advance payments create Unearned Revenue. Loans create Notes Payable. Owner investments increase Owner Capital.
| Cash receipt | Credit |
|---|---|
| Customer pays an invoice | Accounts Receivable |
| Customer pays before work | Unearned Revenue |
| Bank loan | Notes Payable |
| Owner invests | Owner Capital |
| Service performed and paid now | Service Revenue |
Every cash receipt needs a reason, and the reason determines the credit. A useful exercise is to sort a day's deposits into categories before recording them: sales made today, collections of earlier invoices, customer prepayments, loans, and owner money. Only the first category is new revenue. Mixing them up overstates profit, which can mislead an owner about how the business is doing.
Owner withdrawals are the mirror image: cash leaves, but it is not a business cost, so it goes to Owner Drawings.
Check your work
- Is this receipt new revenue, a collection, an advance, a loan, or an investment?
- Did you avoid crediting revenue twice for the same work?
- Did withdrawals go to Owner Drawings?
A client pays $1,500 toward last month's invoice.
| Account | Debit | Credit |
|---|---|---|
| Cash | $1,500.00 | |
| Accounts Receivable | $1,500.00 |
Common mistakes
✗ Crediting Service Revenue when collecting an invoice.
✓ That double-counts revenue.
Guided practice
Use hints freely here.
Item 1 of 2
Collect a receivable
On Mar 7, 2026, a client pays Harbor Point Consulting $4,150.00 by bank transfer for an invoice sent last month.
Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 8
Bank loan received
On Mar 2, 2026, Rise & Shine Bakery signs a two-year note with its bank and receives $8,000.00 in its account.
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Key terms
- Unearned revenue
- Cash received before the service is performed.
- Notes payable
- Formal loans the business must repay.
- Owner capital
- The owner's equity account in a sole proprietorship.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.