chapter 14 - the receivables ledger
TRANSCRIPT
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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