When a customer makes a payment against an invoice, what decreases on the financial statements?

When a customer makes a payment against an invoice, accounts receivable decreases on the financial statements. Accounts receivable represents amounts owed to the company by customers for goods or services that have been delivered but not yet paid for. When the payment is received, the company acknowledges that it has collected cash and reduces the accounts receivable balance accordingly.

This transaction reflects a decrease in the asset side of the balance sheet because the company is receiving cash, which is an asset, and at the same time, it is reducing the amount owed by customers, which is also an asset. Therefore, the decrease in accounts receivable indicates that the customer has settled part of their debt to the company.

This transaction does not affect revenue, which is recognized when goods or services are provided, not at the time cash is received. Equity is impacted by the overall profit and loss, but not directly by the payment of an invoice. Cash increases with the payment received, not decreases. Thus, the correct understanding is that accounts receivable decreases when a customer makes a payment against an invoice.