9 Accounts Receivable

So far we have discussed the A/R account balance, looking at A/R as simply an account on the Statement of Financial Position. But A/R is actually the total, or summation, of many individual accounts owing by customers. These individual accounts allow companies keep track of how much each of their customers owe them, which is super useful when a customer calls to find out how much they owe. So although we record our journal entries using the generic “A/R” account in class, the accounting system actually looks more like this:

IMAGE PLACEHOLDER

And in real life, you will record the customer account when making any journal entry to A/R. In Figure #, A/R gross holds the total balance owed from all customers of $2,500, calculated as $500 + $900 + $300 + $800. This $2,500 balance owing is shown on the Statement of Financial Position as A/R (gross). This will be important later, so please take note: A/R (gross) is the total amount owed by all customers; a simple accumulation of all customer accounts.

Before we go any further, let’s pause and enjoy some practice with A/R journal entries. The following examples include sale transactions and repayment of customer accounts. I’ll do the first example, and you do the second!

My Turn:

Sal-T-Dog Ltd. is a wholesaler that sells pet supplies. In June 20X8, Sal-T-Dog had the following transactions. Record all necessary journal entries for each transaction (ignore sales taxes).

1 June:

Sal-T-Dog sold 80 dog beds on account to a retailer called Malty Corp for $40/bed (cost: $15/bed).

(to record sale of dog beds to Malty Corp on account [80 beds × $40 ⁄ bed])

DR		A/R (Malty Corp)	3,200
	CR	Sales Revenue		3,200

(to record inventory reduction upon sale of dog beds [80 beds × $15 ⁄ bed])

DR		Cost of Goods Sold	600
	CR	Inventory		600

5 June:

Sal-T-Dog sold 40 dog leashes on account to a new customer, PetsMatter Inc., for $200 (cost: $90).

(to record sale of dog leashes to PetsMatter on account)

DR		A/R (PetsMatter Inc.)	200
	CR	Sales Revenue		200

(to record inventory reduction upon sale of dog leashes)

DR		Cost of Goods Sold	90
	CR	Inventory		90

15 June:

Malty Corp paid $1,250 to Sal-T-Dog as partial repayment on account.

(to record collection of A/R)

DR		Cash	1,250
	CR	A/R (Malty Corp)		1,250

Now it’s your turn. Continue the example of Sal-T-Dog – give it a try!

So that’s how we record A/R for retailers and wholesalers. In these sales transactions there are physical goods involved, like dog crates, for example. But what about service companies? Let’s take a look at a service company now:

My Turn:

Joey’s Moving Co. provides moving services to commercial companies. Help Joey record the following transaction for June 20X8 (ignoring sales taxes).

2 June:

Joey moves a fish aquarium for FishBowl Ltd. at a price of $2,500 on account.

Joey performed a service, so there is no inventory involved. Therefore, no COGS/Inventory journal entry is recorded.

Now it’s your turn. Continue the Joey’s example and give it your best!

Great work!! Now that you have some practice with debits and credits, let’s look back at the Statement of Financial Position.