Accounts Receivables Accounting
Lesson 9 in the Basic Accounting series
Accounts Receivables (AR) are sales made by your small business, but not paid for yet by customers. They are usually in the form of invoices generated by your small business and delivered to your customers for payment in an agreed upon time frame.
Accounts Receivables Tips:
Many businesses now only accept credit cards as the tracking and collecting of accounts receivables is difficult for many small businesses.
However, there are some types of businesses that must sell on credit to their clients or customers in order to keep their business going.
If you do sell on credit, here are some tips on tracking and collecting your AR:
Decide on your credit terms. Most businesses use one or more of these options:
- Net 10 – amount due within 10 days of receiving invoice
- Net 30 – amount due within 30 days of receiving invoice
- Due upon receipt – amount due upon receiving invoice
Design your invoice. One of the best and easiest way I have found for creating and managing invoices is FreshBooks. It is super simple to use and you can access it anywhere from your tablet/smart phone.
Many small business accounting software systems have invoice templates. You can usually customize them to fit your business, including adding your own logo.
In some small business accounting software systems such as Quickbooks, all you have to do is prepare the invoices and deposit your customer’s payments as your AR account is automatically tracked.
Properly Tracking your Accounts Receivables:
If you use a manual AR process, here are some of the steps you need to perform in order to properly track your it:
Prepare an invoice. You can do this by hand or through software programs such as FreshBooks. Then you can send your invoice electronically, mail it, or deliver it by hand. Make sure you always keep a hard copy of each invoice.
Set up a collection system. Action is the key. If you are not receiving the money due to you, do something about it. Have a prompting system to ensure all overdue accounts are followed up in a timely fashion.
Enter each sale in your Cash Receipts/Sales Journal. Make sure you enter the date, invoice number, and the amount of the invoice in your journal. Write the customer’s name and account number in the description column of your sales Journal. Record each credit sale individually so you can properly account for each customer’s purchases.
Post individual sales to the appropriate customer accounts in your Customer Ledger. Use a separate page for each customer account. You will record all the activity that relates to each particular customer on each of those pages.
The customer ledger should include the date, transaction amount, invoice number, PO number when applicable, sales journal page, any information you want on customer’s monthly statement.
Post summary information (column totals each completed journal page) to the AR and Sales General Ledger accounts, plus any other accounts involved in the transactions such as sales tax and freight charges. The general ledger entry should include the date dollar amount and sales journal page. AR are shown in the balance sheet as an asset.
Some free AR Spreadsheets: