Accounts Receivable

Introduction to Accounts Receivable

Accounts receivable (AR) are amounts which are owed to a business by its customers for goods and services supplied to them on credit terms, they are sometimes referred to as trade debtors.

When you allow your customer credit and invoice them for a product or service and receive payment at a later date 45 days 90 days etc, then while they owe you the money they are classified as an account receivable.

AR are recorded in the balance sheet of the business under the heading current assets, which means they are convertible into cash within a year.

accounts receivable - balance sheet

Accounts Receivable Formula

The AR formula below reconciles the beginning and ending receivable balances based on the credit sales and the cash collections for the accounting period.

Ending AR = Beginning AR + Credit sales – Cash collections

Accounts Receivable Journal Entry

Account Receivable are normally first recorded in the sales ledger which contains a personal account for each customer. In this way a listing of the sales ledger accounts will give you a listing of outstanding account receivables.

If for example, sales are made on credit to Customer A for 200 and Customer B for 400 the first entry would be to the sales day book to record the sales.

Sales Day Book – to record the sales
Sales Day Book Page 1
Date Customer Invoice Page Amount
8th January 2019 Customer A Invoice 123 Page 4 200
9th January 2019 Customer B Invoice 456 Page 7 400
Total Sales 600

The next entry would be to the sales ledger to record the account receivable to the personal accounts of each customer.

Sales Ledger – to record the Accounts Receivable
Customer A Page 4
Date Account Page Debit Credit
8th January 2019 Sales SDB 1 200
Customer B Page 7
9th January 2019 Sales SDB 1 400
Accounts Receivable 600

Finally the double entry posting would be the total from the sales day book and the sales ledger.

Double entry posting to the AR control account
Account Debit Credit
AR Control Account 600
Revenue 600
Total 600 600
Last modified July 16th, 2019 by Michael Brown

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 in 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 BSc from Loughborough University.

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