Accounts receivable arise from sales on credit and represent future cash collections. When a sale on credit is made Accounts Receivable is increased and when customers make payments on their accounts it is decreased (Meigs, 1999). Suppose ABC Company made sales of 1 million all on credit and after a while company received 750,000. The following accounting entry is made
Sold on Credit
Accounts Receivable 1,000,000
Sales 1,000,000
Received Cash 750,000
Cash 750,000
Accounts Receivable 750,000
The purpose and use of subsidiary ledger is to provide timely and accurate information, as well as good internal control procedures, requires that certain backup accounts be maintained. To illustrate, management needs to know not only the total of its accounts receivable but also the amount that each individual customer owes. The same type of information is needed in regard to payables. Management needs to know the total it owes its various vendors as well as how much it owes its individual vendors and when each payment is due (Meigs, 1999). Similar backup information is often necessary for such items as prepaid insurance and plant and equipment.
The allowance account is a contra assets account in that it is as asset account with a credit balance. Other titles for this account include Allowance for Doubtful accounts and allowance for bad debts. In preparing a balance sheet, the dollar balance in the allowance account is netted against the dollar balance of gross accounts receivable (Meigs, 1999). This net amount represents managements estimate of the net realizable value of the firms receivables.
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1 comments:
It seems as though the article was ended too early. But the information shows how important keeping records of both accounts receivables and accounts payables. They are necessary records which should be given enough attention. An outsourced accounts receivables would handle such with the help of up to date soft wares and license professional capable of doing such.
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