Definition of Accounting Entry When an Order is Received
At the time when a company receives a customer’s order (without receiving payment), no accounting entry is made into the company’s general ledger accounts. (However, there could be an entry into the company’s computer system for scheduling the work or shipment, etc.)
Reasons for No Accounting Entry When an Order is Received
The following is the rationale for no entry into the company’s general ledger (and no effect on the company’s financial statements) at the time that an order is received:
- The company has not yet earned the revenue
- The company does not yet have a right to a receivable or other asset
The revenues and a receivable will not be earned until the company ships or delivers the goods or services.
The company may have a responsibility to deliver what it offered to the customer, but there is no double-entry business transaction to be recorded at the time that the order is received.
