chapter 14 - the receivables ledger

8/14/2019 Chapter 14 - The Receivables Ledger

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CHAPTER 14

The receivables ledger


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g

Contents

Personal accounts for credit customers

Recording transactions in the receivablesledger

The age analysis of receivables and otherreports

Irrecoverable debts


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The need for personal

A customer might telephone, and ask how muchhe currently owes. Staff must be able to tell thecustomer 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 itemisingnew invoices sent out and payments receivedduring the month.

The managers of the business will want to keepa check on the credit position of an individualcustomer, and to ensure that no customer isexceeding his credit limit by purchasing moregoods.

Perhaps most important is the need to match


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Authorisation

Ensure it will receive payment for thosegoods.

Authorisation procedures

Require references from suppliers with whom healready has a credit account, and maybe also areference from his bank.

The customer's credit limit must be authorised

Before goods are despatched to a customer, theorder may need to be authorised by the creditcontrol department. If the customer has invoices overdue for payment, it


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Benefits and costs of offering

Interest costs of an

overdraft, ifcustomers do notpay promptly

Costs of trying to

obtain payment Court costs

Very few

businesses expectto be paidimmediately incash

What benefits?

Costs Benefits


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Accounts receivable

Sales returns (credit notes) inc sales

Payments

Discounts


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Personal accounts as

What means by memorandum?Do not form part of the double entry system

Businesses not needing a receivablesledger?Small businesses

Large businesses


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Recording transactions in the

Hawkins Co started trading at thebeginning of April. During April, the salesday book and the sales returns day book

of Hawkins Co showed the followingtransactions.

We need to show the entries as theywould appear in the sales ledger

accounts to reflect the abovetransactions


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Balancing


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Posting to general ledger


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Posting to general ledger


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Summary

Which is NOTpart of doubleentry

How to

checkposting

correctness?


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Discounts allowed

Pet supplies makes a sale for $1,000 worth ofgoods to Janice. A 10% discount will be allowed if

Janice settles within 10 days. Assuming that Janicesettles within 10 days record the journal entries in

the suppliers' books.


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Example: Posting

You are presented with the following transactionsfrom the sales day book and sales returns daybook for 1 January 20X7.

TASK:(a) Post the transactions to the receivables ledger

accounts provided below.

(b) Set out the double entry for the transactionsshown.

(c) Comment on any unusual items resulting fromyour work in (a) and itemise any additionalprocedures which you consider necessary. Isthere anything which should be brought to your

'


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Answer

(b) Double entries


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Answer

(c) Additional items:

(i) Did you check the sales return to the original invoice?

(ii) Arturo Aski (customer 001) has now exceeded hiscredit limit?

(1) The customer may have told that a cheque was'in the post'.

(2) The invoice might have been given the incorrectaccount code.

(3) The person receiving the order might not havechecked the customer's credit status.

(4) The credit limit may have been raised, but youhave 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


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The age analysis of

Breaks down the customer balances on thereceivables ledger into different periods ofoutstanding debt.

What

for?


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Other reports

Statements of account

Sales tax analysis

Sales analysis

List of customer accounts Customer mailing lists


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Irrecoverable debts

Some debts may need to be written off as'irrecoverable debts' because there is noreal prospect of them being paid.

Reasons? What should be done?


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Irrecoverable debts written

DEBIT Irrecoverable debts account(expense)

CREDIT Total receivables account

A write off of any irrecoverable debt willneed the authorisation of a senior

official in the organisation.


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Example: Irrecoverable debts

At 1 October 20X7 a business had totaloutstanding debts of $8,600. During the yearto 30 September 20X8, the followingtransactions 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 declaredirrecoverable. These are to be written off.

We need to prepare the total receivablesaccount and the irrecoverable debts accountfor the ear.


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Answer


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Irrecoverable debts and

A business may be able to claim relieffrom sales tax on the followingirrecoverable debts.

At least six months old (from the time ofsupply)

Written off in the accounts of the business


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Example

If both the debts written off in previousexample were inclusive of sales tax, theaccounts would look as follows.

How about total AR?


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Quiz

1 What does the receivables ledgercontain?

2 In manual accounting systems the

personal accounts of customers do notform part of the double entry system.

True or false?

3 How might you check the accuracy of the

amounts recorded in the receivablesledger?

4 What is the function of an a e anal sis of


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Answer

1 The personal accounts of customers.

2 True.

3 Work out the total of the balances on the

individual receivables ledger accountsand compare this with the total balanceon the receivables control account.

4 It breaks down the receivables balancesin the receivables ledger into differentperiods of outstanding debt.


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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

chapter 14 - the receivables ledger

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