Accounts Receivable Ledger

Definition

An Accounts Receivable Ledger is a subsidiary ledger specifically maintained to track the amounts owed by each customer. Each page or section of the ledger is dedicated to a single customer account, listing all the transactions that result in receivables. This ledger details how much each customer owes and the changes in these amounts over time due to sales, payments, adjustments, and returns. The cumulative balance in the Accounts Receivable Ledger typically reconciles with the accounts receivable figure reported in the General Ledger.

Examples

Retail Business: In a retail business, a customer purchases goods on credit. The sale is recorded in the customer’s account in the Accounts Receivable Ledger, which tracks the amount of money due from this customer until it is paid.
Service Company: A consulting firm performs services for various clients, invoicing them at the end of the month. Each invoice amount is entered into the corresponding client’s account within the Accounts Receivable Ledger, allowing the firm to monitor outstanding payments.

Frequently Asked Questions (FAQs)

Q1: Why is an Accounts Receivable Ledger important?

A1: The Accounts Receivable Ledger provides detailed information about amounts owed by individual customers, which is critical for effective credit management and collections. It also ensures accurate reporting and helps in reconciling with the General Ledger.

Q2: How often should the Accounts Receivable Ledger be updated?

A2: The Accounts Receivable Ledger should be updated immediately after every transaction involving receivables, such as sales, payments, credit notes, and write-offs, to maintain accuracy.

Q3: What is the relationship between the Accounts Receivable Ledger and the General Ledger?

A3: The total balance of all customer accounts in the Accounts Receivable Ledger should match the accounts receivable balance in the General Ledger. This ensures that detailed records support the summary figures presented in financial statements.

General Ledger: A comprehensive ledger that contains a summary of all financial transactions, including aggregated balances from subsidiary ledgers like the Accounts Receivable Ledger.
Accounts Receivable: The amount of money owed to a business by its customers for goods or services provided on credit.
Subsidiary Ledger: A detailed ledger that supports a general ledger control account by recording the detailed transactions that make up the control account balance.

Online References

Suggested Books for Further Studies

“Accounting Principles” by Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso.
“Financial & Managerial Accounting” by Jan Williams, Susan Haka, Mark Bettner, and Joseph Carcello.
“Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield.

Fundamentals of Accounts Receivable Ledger: Accounting Basics Quiz

### What type of ledger records the detailed transactions and balances for each customer? - [x] Accounts Receivable Ledger - [ ] Accounts Payable Ledger - [ ] General Ledger - [ ] Control Ledger > **Explanation:** The Accounts Receivable Ledger records detailed transactions and balances for each customer, tracking amounts owed by customers. ### Can the total balance in the Accounts Receivable Ledger differ from that in the General Ledger? - [ ] Yes, they are not directly related. - [x] No, the total balance should agree with the General Ledger. - [ ] Occasionally, to address timing differences. - [ ] Only if adjustments are made. > **Explanation:** The total balance in the Accounts Receivable Ledger should match the accounts receivable balance in the General Ledger to ensure accuracy in financial reporting. ### What kind of transactions are recorded in the Accounts Receivable Ledger? - [ ] Only cash transactions - [ ] Purchase transactions - [x] Credit sales and payments - [ ] Payroll transactions > **Explanation:** The Accounts Receivable Ledger records transactions related to credit sales and payments from customers. ### Who would typically use an Accounts Receivable Ledger? - [ ] Suppliers - [x] Creditors - [ ] Employees - [ ] Customers > **Explanation:** Creditors and businesses managing receivables would use an Accounts Receivable Ledger to track amounts owed by customers. ### What kind of business transaction leads to an entry in the Accounts Receivable Ledger? - [ ] An employee's salary payment - [ ] A credit sale to a customer - [ ] A cash purchase of inventory - [x] A credit sale to a customer > **Explanation:** A credit sale to a customer results in an entry in the Accounts Receivable Ledger. ### How is the accuracy of the Accounts Receivable Ledger verified? - [x] By reconciling with the General Ledger - [ ] By comparing with cash flows - [ ] By approving it through an audit - [ ] By using it in tax preparation > **Explanation:** The accuracy of the Accounts Receivable Ledger is verified by reconciling its total balance with the accounts receivable figure in the General Ledger. ### Which element does not belong in an Accounts Receivable Ledger? - [x] Employee salaries - [ ] Customer payments - [ ] Credit sales - [ ] Customer returns > **Explanation:** Employee salaries are not recorded in the Accounts Receivable Ledger; it only includes customer transactions. ### How often should balances in the Accounts Receivable Ledger be reconciled with the General Ledger? - [ ] Annually - [ ] Quarterly - [x] Monthly or more frequently - [ ] Never; they are maintained separately > **Explanation:** Balances in the Accounts Receivable Ledger should be reconciled with the General Ledger monthly or more frequently to ensure accuracy. ### Who benefits from the information contained in the Accounts Receivable Ledger? - [x] Credit management teams - [ ] Human resources - [ ] Marketing teams - [ ] IT support > **Explanation:** Credit management teams benefit from the information as it helps them track, collect, and manage receivables. ### What fundamental principle does maintaining a detailed Accounts Receivable Ledger adhere to? - [ ] Equity Principle - [x] Accuracy and Completeness - [ ] Going Concern Principle - [ ] Matching Principle > **Explanation:** Maintaining a detailed Accounts Receivable Ledger adheres to the principle of accuracy and completeness in financial accounting.

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