Accounts Receivable
Module 3:
Cash, Receivables, Payables
Duration:
45-60 minutes
Level:
Beginner to Diploma-Level
Lesson Objectives
➛ Define accounts receivable.
➛ Distinguish between cash sales and credit sales.
➛ Record credit sales correctly.
➛ Maintain accounts receivable records.
➛ Explain the importance of managing receivables.
Key Vocabulary
➛ Accounts Receivable
➛ Credit Sale
➛ Debtor
➛ Trade Receivable
➛ Credit Terms
➛ Subsidiary Ledger
➛ Control Account
➛ Collection
What Are Accounts Receivable?
Accounts receivable represent
➛ Money owed by customers
➛ Arising from credit sales
They are classified as current assets.
Cash Sales vs Credit Sales
Cash Sale
Paid immediately
No receivable created
Lower risk
Paid immediately
No receivable created
Lower risk
Credit Sale
Paid later
Account receivable created
Higher risk
Paid later
Account receivable created
Higher risk
Recording Credit Sales
At the time of sale
➛ Dr Accounts Receivable
➛ Cr Sales Revenue
When customer pays
➛ Dr Cash / Bank
➛ Cr Accounts Receivable
Subsidiary Ledger
➛ Each customer has a separate account
➛ Total of subsidiary ledger = control account balance
➛ Helps track individual customer balances
Risks in Accounts Receivable
➛ Late payments
➛ Bad debts
➛ Cash flow problems
Proper management reduces these risks.
Identify the Transaction
State whether each transaction is
Cash sale | Credit sale
➛ Customer pays immediately at checkout
➛ Customer allowed 30 days to pay
➛ Sale paid by bank transfer at time of purchase
➛ Sale invoiced to customer
Journal Entry Practice
Prepare journal entries for
➛ Sold goods on credit for 2,500
➛ Received 1,800 from a customer
➛ Sold services for cash 1,200
➛ Customer returned goods worth 300
Subsidiary Ledger Understanding
Explain
1. Why a subsidiary ledger is needed
2. What a control account represents
Mini Case Study
A stationery supplier sells goods on credit to schools.
Details
➛ Credit sales this month: 15,000
➛ Cash collected from customers: 10,000
➛ Customer returns: 1,000
Questions
➛ What is the accounts receivable balance at month-end?
➛ Why is managing receivables important for this business?
➛ Name two risks of poor receivable management.
Quick Quiz
➛ What are accounts receivable?
➛ Are receivables assets or liabilities?
➛ What entry records a credit sale?
➛ What is a subsidiary ledger?
➛ True or False | Cash sales create accounts receivable.
Answers ➧ Here
Notes Receivable ➧ Here