Chapter 14 - The Receivables Ledger
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CHAPTER 14 The receivables ledger
Contents
Personal accounts for credit customers Recording transactions in the receivables ledger The age analysis of receivables and other reports Irrecoverable debts
The need for personal accounts
A customer might telephone, and ask how much he currently owes. Staff must be able to tell the customer the state of his account. It is a common practice to send out statements to credit customers at the end of each month, showing how much they still owe, and itemising new invoices sent out and payments received during the month. The managers of the business will want to keep a check on the credit position of an individual customer, and to ensure that no customer is exceeding his credit limit by purchasing more goods. Perhaps most important is the need to match payments against debts owed.
Authorisation
Ensure it will receive payment for those goods. Authorisation procedures Require
references from suppliers with whom he already has a credit account, and maybe also a reference from his bank. The customer's credit limit must be authorised Before goods are despatched to a customer, the order may need to be authorised by the credit control department.
If the customer has invoices overdue for payment, it may be decided that no further orders can be
Benefits and costs of offering credit facilities Costs
Interest costs of an overdraft, if customers do not pay promptly Costs of trying to obtain payment Court costs
Benefits
Very few businesses expect to be paid immediately in cash What benefits?
Accounts receivable
Sales returns (credit notes) inc sales tax X Payments received X
Discounts allowed
Personal accounts as memorandum accounts
What means by memorandum? Do
not form part of the double entry system
Businesses not needing a receivables ledger? Small
businesses Large businesses
Recording transactions in the receivables ledger
Hawkins Co started trading at the beginning of April. During April, the sales day book and the sales returns day book of Hawkins Co showed the following transactions. We need to show the entries as they would appear in the sales ledger accounts to reflect the above transactions
Balancing
Posting to general ledger
Posting to general ledger
Summary
Which is NOT part of double entry How to check posting correctness?
Discounts allowed
Pet supplies makes a sale for $1,000 worth of goods to Janice. A 10% discount will be allowed if Janice settles within 10 days. Assuming that Janice settles within 10 days record the journal entries in the suppliers' books.
Example: Posting transactions You are presented with the following transactions from the sales day book and sales returns day book for 1 January 20X7. TASK: (a) Post the transactions to the receivables ledger accounts provided below. (b) Set out the double entry for the transactions shown. (c) Comment on any unusual items resulting from your work in (a) and itemise any additional procedures which you consider necessary. Is there anything which should be brought to your supervisor's attention?
Answer (b) Double entries
Answer (c) Additional items: (i) Did you check the sales return to the original invoice? (ii) Arturo Aski (customer 001) has now exceeded his credit limit? (1) The customer may have told that a cheque was 'in the post'. (2) The invoice might have been given the incorrect account code. (3) The person receiving the order might not have checked the customer's credit status. (4) The credit limit may have been raised, but you have not yet been told about it. (iii) Grace Chang has an outstanding balance of $1,196.01. When she next makes an order, the account must be checked to see that she has reduced the
The age analysis of receivables
Breaks down the customer balances on the receivables ledger into different periods of outstanding debt.
W h at fo r?
Other reports
Statements of account Sales tax analysis Sales analysis List of customer accounts Customer mailing lists
Irrecoverable debts
Some debts may need to be written off as 'irrecoverable debts' because there is no real prospect of them being paid. Reasons? What should be done?
Irrecoverable debts written off DEBIT Irrecoverable debts account (expense) CREDIT Total receivables account A write off of any irrecoverable debt will need the authorisation of a senior official in the organisation.
Example: Irrecoverable debts written off At 1 October 20X7 a business had total outstanding debts of $8,600. During the year to 30 September 20X8, the following transactions took place. (a) Credit sales amounted to $44,000. (b) Payments from various customers amounted to $49,000. (c) Two debts, for $180 and $420 (both including sales tax) were declared irrecoverable. These are to be written off. We need to prepare the total receivables account and the irrecoverable debts account for the year.
Answer
Irrecoverable debts and sales tax
A business may be able to claim relief from sales tax on the following irrecoverable debts. At
least six months old (from the time of supply) Written off in the accounts of the business
Example
If both the debts written off in previous example were inclusive of sales tax, the accounts would look as follows.
How about total AR?
Quiz 1 What does the receivables ledger contain? 2 In manual accounting systems the personal accounts of customers do not form part of the double entry system. True or false? 3 How might you check the accuracy of the amounts recorded in the receivables ledger? 4 What is the function of an age analysis of
Answer 1 The personal accounts of customers. 2 True. 3 Work out the total of the balances on the individual receivables ledger accounts and compare this with the total balance on the receivables control account. 4 It breaks down the receivables balances in the receivables ledger into different periods of outstanding debt.
QB 31 Write of an irrecoverable debt will result in: A An increase in liabilities B A decrease in working capital C A decrease in net profit D An increase in net profit Answer: C
Contents
Personal accounts for credit customers Recording transactions in the receivables ledger The age analysis of receivables and other reports Irrecoverable debts
The need for personal accounts
A customer might telephone, and ask how much he currently owes. Staff must be able to tell the customer the state of his account. It is a common practice to send out statements to credit customers at the end of each month, showing how much they still owe, and itemising new invoices sent out and payments received during the month. The managers of the business will want to keep a check on the credit position of an individual customer, and to ensure that no customer is exceeding his credit limit by purchasing more goods. Perhaps most important is the need to match payments against debts owed.
Authorisation
Ensure it will receive payment for those goods. Authorisation procedures Require
references from suppliers with whom he already has a credit account, and maybe also a reference from his bank. The customer's credit limit must be authorised Before goods are despatched to a customer, the order may need to be authorised by the credit control department.
If the customer has invoices overdue for payment, it may be decided that no further orders can be
Benefits and costs of offering credit facilities Costs
Interest costs of an overdraft, if customers do not pay promptly Costs of trying to obtain payment Court costs
Benefits
Very few businesses expect to be paid immediately in cash What benefits?
Accounts receivable
Sales returns (credit notes) inc sales tax X Payments received X
Discounts allowed
Personal accounts as memorandum accounts
What means by memorandum? Do
not form part of the double entry system
Businesses not needing a receivables ledger? Small
businesses Large businesses
Recording transactions in the receivables ledger
Hawkins Co started trading at the beginning of April. During April, the sales day book and the sales returns day book of Hawkins Co showed the following transactions. We need to show the entries as they would appear in the sales ledger accounts to reflect the above transactions
Balancing
Posting to general ledger
Posting to general ledger
Summary
Which is NOT part of double entry How to check posting correctness?
Discounts allowed
Pet supplies makes a sale for $1,000 worth of goods to Janice. A 10% discount will be allowed if Janice settles within 10 days. Assuming that Janice settles within 10 days record the journal entries in the suppliers' books.
Example: Posting transactions You are presented with the following transactions from the sales day book and sales returns day book for 1 January 20X7. TASK: (a) Post the transactions to the receivables ledger accounts provided below. (b) Set out the double entry for the transactions shown. (c) Comment on any unusual items resulting from your work in (a) and itemise any additional procedures which you consider necessary. Is there anything which should be brought to your supervisor's attention?
Answer (b) Double entries
Answer (c) Additional items: (i) Did you check the sales return to the original invoice? (ii) Arturo Aski (customer 001) has now exceeded his credit limit? (1) The customer may have told that a cheque was 'in the post'. (2) The invoice might have been given the incorrect account code. (3) The person receiving the order might not have checked the customer's credit status. (4) The credit limit may have been raised, but you have not yet been told about it. (iii) Grace Chang has an outstanding balance of $1,196.01. When she next makes an order, the account must be checked to see that she has reduced the
The age analysis of receivables
Breaks down the customer balances on the receivables ledger into different periods of outstanding debt.
W h at fo r?
Other reports
Statements of account Sales tax analysis Sales analysis List of customer accounts Customer mailing lists
Irrecoverable debts
Some debts may need to be written off as 'irrecoverable debts' because there is no real prospect of them being paid. Reasons? What should be done?
Irrecoverable debts written off DEBIT Irrecoverable debts account (expense) CREDIT Total receivables account A write off of any irrecoverable debt will need the authorisation of a senior official in the organisation.
Example: Irrecoverable debts written off At 1 October 20X7 a business had total outstanding debts of $8,600. During the year to 30 September 20X8, the following transactions took place. (a) Credit sales amounted to $44,000. (b) Payments from various customers amounted to $49,000. (c) Two debts, for $180 and $420 (both including sales tax) were declared irrecoverable. These are to be written off. We need to prepare the total receivables account and the irrecoverable debts account for the year.
Answer
Irrecoverable debts and sales tax
A business may be able to claim relief from sales tax on the following irrecoverable debts. At
least six months old (from the time of supply) Written off in the accounts of the business
Example
If both the debts written off in previous example were inclusive of sales tax, the accounts would look as follows.
How about total AR?
Quiz 1 What does the receivables ledger contain? 2 In manual accounting systems the personal accounts of customers do not form part of the double entry system. True or false? 3 How might you check the accuracy of the amounts recorded in the receivables ledger? 4 What is the function of an age analysis of
Answer 1 The personal accounts of customers. 2 True. 3 Work out the total of the balances on the individual receivables ledger accounts and compare this with the total balance on the receivables control account. 4 It breaks down the receivables balances in the receivables ledger into different periods of outstanding debt.
QB 31 Write of an irrecoverable debt will result in: A An increase in liabilities B A decrease in working capital C A decrease in net profit D An increase in net profit Answer: C
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