Accounts Receivable
Identify the Transaction
State whether each transaction is
Cash sale | Credit sale
Customer pays immediately at checkout
➛ Cash sale
Customer allowed 30 days to pay
➛ Credit sale
Sale paid by bank transfer at time of purchase
➛ Cash sale
Sale invoiced to customer
➛ Credit sale
Journal Entry Practice
Prepare journal entries for
➧ Sold goods on credit for 2,500
Dr Accounts Receivable
Cr Sales Revenue
Cr Sales Revenue
2,500
2,500
2,500
➧ Received 1,800 from a customer
Dr Cash / Bank
Cr Accounts Receivable
Cr Accounts Receivable
1,800
1,800
1,800
➧ Sold services for cash 1,200
Dr Cash / Bank
Cr Service Revenue
Cr Service Revenue
1,200
1,200
1,200
➧ Customer returned goods worth 300
Dr Sales Returns / Allowances
Cr Accounts Receivable
Cr Accounts Receivable
300
300
300
Subsidiary Ledger Understanding
Why a subsidiary ledger is needed
➛ To track individual customer balances
➛ To manage collections efficiently
➛ To support the accounts receivable control account
What a control account represents
➛ The total balance of all customer accounts in the subsidiary ledger
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?
➛ 15,000 − 10,000 − 1,000 = 4,000
Why is managing receivables important for this business?
➛ Ensures steady cash flow
➛ Reduces risk of bad debts
➛ Improves business liquidity
Name two risks of poor receivable management.
➛ Late or non-payment
➛ Increased bad debts
➛ Cash flow problems
Any two earn full marks
Quick Quiz
What are accounts receivable?
➛ Amounts owed by customers due to credit sales.
Are receivables assets or liabilities?
➛ Assets
What entry records a credit sale?
➛ Dr Accounts Receivable
➛ Cr Sales Revenue
What is a subsidiary ledger?
➛ A detailed record of individual customer accounts.
Cash sales create accounts receivable.
➛ False
Notes Receivable ➧ Here