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

Account Receivable Journal Entry

Account Receivable are normally first recorded in the sales ledger which contains a personal account for each customer. Consequently, 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 BookPage 1
8th January 2022Customer AInvoice 123Page 4200
9th January 2022Customer BInvoice 456Page 7400
Total Sales600

Following this 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 APage 4
8th January 2022SalesSDB 1200
Customer BPage 7
9th January 2022SalesSDB 1400
Accounts Receivable600

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
AR Control Account600
Last modified September 26th, 2022 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 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.

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