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How does Accounts Receivable work?
Home » Accounting » Accounts Receivable » How does Accounts Receivable work?When a sale is made, the amount of the sale is posted to the accounts receivable ledger. This step is crucial whether you post sales by hand or through the computer. A separate account receivable ledger should be maintained for each customer, and can double as the monthly statement to keep billing costs down.
Statements for each account receivable are typically sent to customers monthly. Some statements are delivered by hand when the merchandise is delivered. Others are mailed at the end of each week or month. The statement that is mailed or delivered is called an Invoice and the cycle of sending regular statements of account is called the billing cycle.
As payments are received from each customer, those payments are posted to the accounts receivable ledger for that account. Each accounts receivable ledger should have a debit and a credit column. Sales are posted in the debit column and payments are posted to the credit column.
A total of all accounts receivable is kept in the accounts receivable control account. This account is a total of all accounts receivable that are due. As each payment toward individual accounts receivable are made, the total of those payments are posted to the accounts receivable control account. At the end of the day, both the total of all accounts receivable and the balance of the accounts receivable control account should balance. The total of all accounts receivable, minus the payments received, should be entered into the general ledger. This total is listed as current asset on the business balance sheet.
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