The accounts receivable control account or sales ledger control account, is an account maintained in the general ledger used to record summary transactions relating to accounts receivable. The balance on the accounts receivable control account at any time reflects the amount outstanding and due to the business by customers for credit sales.
A reconciliation between the control account and the total of the individual customer accounts (personal accounts) in the subsidiary ledger, forms an effective internal control procedure for the business to ensure that all transactions have been correctly posted.
Accounts Receivable Control Account Postings
The two main transaction types for accounts receivables are credit invoice sales transactions, and the receipt of cash from customers.
In a typical bookkeeping system where the control accounts form part of the double entry posting, the accounts receivable control account is used for each of these types of transaction as follows.
Sales Transactions
1. Source Documents
Sales invoices are generated when credit sales are made to a customers. The sales invoice acts as the original accounting source document for the transaction. For example, two invoices might be generated, one to customer A for 500, and a second to customer B for 300.
2. Books of Prime Entry
The sales invoices are used to enter details into the book of prime entry which, for credit sales, is the sales journal (sales day book). The sales journal is simply a listing of the sales invoices.
| Transaction | Amount |
|---|---|
| Invoice 1 Customer A | 500 |
| Invoice 2 Customer B | 300 |
| Total | 800 |
3. Subsidiary Ledger
The sales invoices are also used to enter details of the sales to each customer in the accounts receivable subsidiary ledger. The subsidiary ledger is a listing of personal accounts, one for each customer.
| Transaction | Invoices | Receipts |
|---|---|---|
| Invoice 1 | 500 | |
| Total | 500 |
| Transaction | Invoices | Receipts |
|---|---|---|
| Invoice 2 | 300 | |
| Total | 300 |
The accounts receivable subsidiary ledger does not form part of the double entry bookkeeping process.
4. General Ledger
The sales journal is totalled for the accounting period, and used to make a double entry posting to the general ledger. The sales are posted to the credit side of the sales revenue account, and to the debit side of the accounts receivable control account.
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable control | 800 | |
| Sales revenue | 800 | |
| Total | 800 | 800 |
The general ledger and in particular the accounts receivable control account does form part of the double entry bookkeeping process.
It should be noted that following this posting, the total on the accounts receivable control account of 800, is equal to the total of the personal accounts in the subsidiary ledger of 500 + 300 = 800.
Cash Receipts Transactions
The next main type of accounts receivable transaction is the receipt of cash from the customer for the outstanding invoice.
1. Source Documents
When a customer makes a payment for an outstanding invoice either a check will be received or if paid directly to the bank account, an entry will appear on the bank statement of the business. The check and the bank statement are both source documents in relation to the cash receipt transaction.
2. Books of Prime Entry
The source documents are used to enter details into the book of prime entry which, for receipts transactions, is the cash book. For example, two cash receipts might be received, one from customer A for 275, and a second from customer B for 170.
In this example, the business uses a cash control account in the general ledger, and the cash book does not form part of the double entry system, and is simply a listing of the cash receipts.
| Transaction | Amount |
|---|---|
| Receipt 1 Customer A | 275 |
| Receipt 2 Customer B | 170 |
| Total | 445 |
3. Subsidiary Ledger
The source documents are also used to enter details of the receipts from each customer in the accounts receivable subsidiary ledger which now appears as follows.
| Transaction | Invoices | Receipts |
|---|---|---|
| Invoice 1 | 500 | |
| Receipt 1 | 275 | |
| Total | 500 | 275 |
| Balance | 225 |
| Transaction | Invoices | Receipts |
|---|---|---|
| Invoice 2 | 300 | |
| Receipt 2 | 170 | |
| Total | 300 | 170 |
| Balance | 130 |
4. General Ledger
The cash book is totalled for the accounting period, and used to make a double entry posting to the general ledger. The cash receipts are posted to the debit side of the cash control account, and to the credit side of the accounts receivable control account.
| Account | Debit | Credit |
|---|---|---|
| Cash control account | 445 | |
| Accounts receivable control | 445 | |
| Total | 445 | 445 |
The accounts receivable control account is now as follows.
| Transaction | Debit | Credit |
|---|---|---|
| Sales journal invoice total | 800 | |
| Cash book receipts total | 445 | |
| Total | 800 | 445 |
| Balance | 355 |
Again it should be noted that following this posting, the total on the accounts receivable control account of 355 is equal to the total of the personal accounts in the subsidiary ledger of 225 + 130 = 355.
The use of the receivables control account as described above is summarized for easy reference in the following diagram.
Using the Accounts Receivable Control Account
The purpose of the receivables control account is to allow the transaction details relating to each customer to be maintained in a separate subsidiary ledger while keeping the summary postings to a minimum in the general ledger. By having the control account in the general ledger, a trial balance can be extracted without reference to any other accounting ledgers.
Part of the period end bookkeeping process is to reconcile the balance on the accounts receivable control account in the general ledger to the total of the balances each of the customer accounts in the subsidiary ledger. If the balances do not agree then it means there must be an error in one or both of the ledgers.
It should be noted that in the above example, the subsidiary ledger and the sales journal are independently completed from the source documents. By adopting this procedure any differences between the sales journal, which is used to post the control account, and the subsidiary ledger will be highlighted when the control account reconciliation is carried out.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.