Accounts receivable and the receivables ledger

A trade receivable is a business's unconditional right to be paid for goods or services already delivered — only the passage of time stands between it and the cash. (A right that still depends on further performance is a contract asset under IFRS 15.) Receivables are financial assets under IFRS 9, normally measured at the transaction price and then at amortised cost less an allowance for expected credit losses.

Two records, one balance. The general ledger holds a single Accounts receivable control account. Behind it sits the receivables (subsidiary) ledger — one account per customer, so the business knows who owes what, can send statements and can age the balances. Every credit sale, receipt, return and discount is posted to both: to the customer's own account (from the individual document) and, in total, to the control account (from the day book or a system batch). At month end the list of customer balances must equal the control account. A difference means a posting was missed, duplicated or misdirected.

The transactions: - Credit sale — debit receivables, credit sales revenue. In a perpetual inventory system also debit cost of sales and credit inventory. - Collection — debit cash, credit receivables. Revenue isn't touched: it was earned at delivery. - Sales return — reverse the revenue through Sales returns and allowances (a contra-revenue account that lets managers see return rates), credit receivables, and bring the goods back into inventory at cost. (Where returns are expected — a 30-day returns policy, say — IFRS 15 and ASC 606 go further: revenue is recognised only for the goods not expected to come back, with a refund liability and an asset for the goods to be recovered. Track 6 covers that model; this lesson records returns as they happen.) - Settlement (prompt-payment) discount — "2/10, net 30" offers 2% off for payment within 10 days. Under IFRS 15 such a discount is variable consideration: it reduces revenue, it is not a finance cost. If the business expects the customer to take it, revenue and the receivable are recognised net (98%); if not, they are recognised gross and any discount later taken reduces revenue. US GAAP (ASC 606) reaches the same answer. - Write-off — when a debt is confirmed uncollectable, debit the allowance and credit receivables (covered in the next lesson).