What accounting entries are recorded when a payment is received from a customer?

When a payment is received from a customer, the correct accounting entries involve increasing the Cash account and decreasing the Accounts Receivable account. This reflects that the company has received cash (an asset) and, at the same time, recognizes that the outstanding amount owed by the customer has been settled.

Recording a debit to Cash indicates an increase in assets, as cash inflow adds to the available funds for the company. Conversely, the credit to Accounts Receivable signifies that the amount owed by the customer is reduced, as the payment has been collected. This entry accurately captures the financial impact of the transaction on the company's balance sheet and ensures that the accounting records are kept in balance, as the increase in one asset (Cash) is offset by the decrease in another asset (Accounts Receivable).

This understanding emphasizes the fundamental accounting principle of double-entry accounting, where every financial transaction affects at least two accounts, ensuring the accounting equation remains balanced.