My dad just gave me $4200 to pay for the college semester, and he expects nothing in return. I would like to correctly record this using double-entry bookkeeping.
Normally, I would just pay for college first, and then he would pay me. When I do this, I credit $4200 from my cash account, and debit $4200 to an account receivable. Then, when he gives me the money after I have paid for college, I would debit $4200 to my cash account, and credit $4200 from my account receivable. In this case, the account receivable ends up with a balance of $0.
However, this time he paid me before I paid for college. So if I recorded it as I normally would, I would debit $4200 to my account, and credit $4200 from an account receivable. But if I did this, the account receivable would end up with negative balance until I actually paid for college (when I would credit $4200 from my cash account, and debit $4200 to the account receivable).
So what would be the correct way to record this transaction?