Payment on account definition

What is Payment on Account?

A payment on account occurs when a payment is received from a customer, and there is no notation with the payment regarding which invoice is being paid. A payment on account can also refer to an advance payment, which the recipient then applies to subsequent invoices as they are generated.

Accounting for a Payment on Account

The seller records the payment in a pending account, while depositing the check and maintaining all information received about the payment in a file. The contents of the pending account are later investigated and cleared as more information is obtained from customers. The accounting department of the recipient needs to investigate these payments on a regular basis, or else the status of its detailed invoice records will become increasingly inaccurate over time.

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