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Accounts receivable are unpaid customer invoices, and any other money owed to you by your customers. The sum of all your customer accounts receivable is listed as a current asset on your balance sheet.
You should keep an accounts receivable ledger account for each customer. The accounts receivable ledger, which can also double as a customer statement, is a record of each customer's charges and payments.
When a customer purchases something, you'll first record the sale in the sales and cash receipts journal. This journal will have accounts receivable debit and credit columns. Charge sales and payments on account are entered in these two columns, respectively.
Then, each day, the credit sales recorded in the sales and cash receipts journal is posted to the appropriate customer's accounts in the accounts receivable ledger. This allows you to know not only the total amount owed to you by all credit customers, but also the total amount owed by each customer.
Entries made in the sales and cash receipts journal are also totaled at the end of the month, and the results are posted to the accounts receivable account in your general ledger. This account is your accounts receivable "control account." What "control" means is that after all your posting is completed, the total amount of customer balances in the accounts receivable ledger will be the same as the balance in the control account in the general ledger. If they aren't the same, you can tell that you made an error somewhere along the line.
If you extend credit to your customers and maintain a sales and cash receipts journal by hand, look for a journal that integrates posting to the accounts receivable ledgers with the recording of sales and cash receipts transactions. This is called a "one-write" system. It will usually save you time and cut down on posting errors. If you use a computer program, posting to the accounts receivable ledgers will occur automatically.
Accounts receivable ledger. You must maintain an accounts receivable ledger account for each customer you extend credit to. Post your sales invoice charges from the sales and cash receipts journal to the customer ledgers at the end of each day. Also, whether you use a cash register or a separate cash receipts book, be sure to post cash receipts on account to the appropriate ledgers at the end of the day.
Keep all your accounts receivable ledgers in one binder. To save paperwork, we recommend that copies of the accounts receivable ledgers also serve as the statements you mail to your customers in request for payment. If you are going to mail them out as statements, begin a new ledger sheet every month. The monthly ledger sheet should start with a balance forward, which is the ending balance from the previous month.
If your ledger sheets will not be doubling as your customer statements, you don't need to start a new sheet every month. Just keep a permanent ledger for each customer that maintains a running total of the customer balance.
For most businesses, statements should be sent once a month to all customers with an account balance.
The statement should show the following:
- a beginning balance (the previous month's ending balance)
- all invoices charged during the month
- payments on account during the month
- any debit memos or credit memos
- an ending balance
- a due date
Control account: When you mail statements to your customers every month, you should reconcile your accounts receivable ledgers with the accounts receivable control account. The control account is the total accounts receivable balance from your general ledger. The beginning accounts receivable total, plus charge sales for the month, minus payments on account for the month, should equal the ending accounts receivable total. Compare this amount to the sum of the individual customer accounts receivable ledgers. This will help you discover any errors in your customer statements before you mail them out.
Aging reports critical: You should periodically prepare an accounts receivable aging report. This is a valuable cash management tool which you will use to contact past due customers.