How to prepare the Trade Receivables Control Account

Ledger

What you need

• Opening balance of debtors (Balance b/d) at the start of the period.
• Totals from the books of prime entry: sales journal (credit sales), sales returns journal, cash book (money received and discount allowed) and general journal (bad debts).
• Understanding of the double-entry rules (debit and credit) and which items increase or reduce the receivables balance.
• A neat T-account format with a title, dates, and particulars and amount columns on both sides.

Step by step

1. 1

   Understand the purpose and open the format

   Draw a T-account titled 'Trade Receivables Control Account' (also called the Debtors Control Account). It summarises all the transactions with credit customers found in the sales ledger. The debit side records items that increase the amount receivable (the opening balance and credit sales), while the credit side records items that reduce it (money received, discount allowed, sales returns and bad debts). These steps use the figures of Perniagaan Setia for May.

2. 2

   Record the opening balance of debtors

   Enter the opening balance of debtors on the debit side as 'Balance b/d'. This figure is usually brought down from the previous month. For Perniagaan Setia the debtors owed RM8,000 on 1 May, so: Debit, Balance b/d RM8,000.

3. 3

   Record credit sales

   Take the total credit sales from the sales journal and enter it on the debit side because credit sales increase what customers owe. Perniagaan Setia's credit sales for May were RM25,000: Debit, Sales RM25,000. Remember: cash sales are NOT included in this account.

4. 4

   Record money received from debtors

   Take the total money received from debtors from the cash book and enter it on the credit side because it reduces the debt. Perniagaan Setia received RM20,000 from debtors: Credit, Bank RM20,000.

5. 5

   Record discount allowed

   Record discount allowed (cash discount given to debtors) on the credit side, taken from the discount allowed column of the cash book. Perniagaan Setia gave RM800 discount: Credit, Discount allowed RM800. Note this is discount allowed, not discount received.

6. 6

   Record sales returns

   Record sales returns (returns inwards) on the credit side because customers returned goods, so their debt falls. Take the total from the sales returns journal. Perniagaan Setia recorded sales returns of RM1,200: Credit, Sales returns RM1,200.

7. 7

   Record bad debts

   Record bad debts written off on the credit side because they remove debts that cannot be collected from the account. Take the figure from the general journal. Perniagaan Setia wrote off RM500: Credit, Bad debts RM500.

8. 8

   Balance the account

   Total both sides and find the difference. Debit = RM8,000 + RM25,000 = RM33,000. Credit so far = RM20,000 + RM800 + RM1,200 + RM500 = RM22,500. The difference RM33,000 − RM22,500 = RM10,500 is entered on the credit side as 'Balance c/d RM10,500' so that both sides total RM33,000. Then bring the balance down to the debit side for the next month as 'Balance b/d RM10,500'. This balance is the amount of receivables reported as a current asset in the statement of financial position.

Second example

Kedai Harmoni prepares its control account for June with two extra transactions: a dishonoured cheque and a contra. Opening debtors were RM5,000, credit sales RM12,000, money received RM9,000, discount allowed RM300, bad debts RM200 and a contra (set-off) with the Trade Payables Control Account of RM250. During the month a customer's cheque for RM400 was dishonoured, so that amount is re-entered on the DEBIT side (Debit, Bank RM400) because the customer owes the amount again. The contra goes on the credit side because it reduces the receivables balance. The debit side = RM5,000 + RM12,000 + RM400 = RM17,400. The credit side so far = RM9,000 + RM300 + RM200 + RM250 = RM9,750. So Balance c/d = RM17,400 − RM9,750 = RM7,650, entered on the credit side and brought down as Balance b/d RM7,650. Notice the dishonoured cheque sits on the debit side, unlike discount, bad debts and the contra, which sit on the credit side.

Common mistakes

Related chapter: Ledger →

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