What is the Sales and Collection Cycle?
The sales and collections cycle in a business refers to the set of processes that begin when a customer purchases goods or services and ends when your business receives payment in full.
The Sales and Collection Cycle, also known as the Revenue, Receivables, and Receipts (RRR) Cycle, is composed of various classes of transactions. The sales class and receipts class of transactions are the typical journal entries that debit accounts receivable and credit sales revenue, and debit cash and credit accounts receivable, respectively. These are the recording of the sales and cash collection of the sale.
Additionally, there are other classes of transactions in the sales and collection cycle that include sales returns and allowances (debit sales returns, credit accounts receivable), write-offs of uncollectible receivables (debit allowance for doubtful accounts, credit accounts receivable), and bad debt expenses (debit bad debt expense and credit allowance for doubtful accounts). We focus here on the more common journal entries.