6. The Receivables and Payables Ledgers Flashcards
What do nominal ledger accounts related to?
Nominal ledger accounts relate to types of income, expense, asset, capital and liability - rent, sales, trade receivables, payables and so on - but do not record individual details relating to the person or business to whom the money is paid or from whom it is received.
Why is there a need for personal accounts?
Where are personal accounts contained?
The nominal ledger accounts do not record individual details relating to the person or business to whom the money is paid of from whom it is received.
Therefore, there is also a need for personal accounts, most commonly for receivables and payables, and these are contained in the receivables ledger and the payables ledger.
What type of accounts are the trade receivables ledger and the trade payables ledger?
Where are they kept?
These are memorandum accounts only, in memorandum ledgers; they are not part of the double entry system. Instead trade receivables and trade payables accounts are kept in the nominal ledger which record the totals of the receivables and payables ledgers.
How is it possible in a manual accounting system for there to be differences between the balances in the receivables and payables ledgers and the totals in the nominal ledger.
In a manual system of accounting, the receivables and payables ledgers would be updated separately from the nominal ledger.
It was therefore possible that, due to errors, there would be differences between the balances in the receivables and payables ledgers and the total in the nominal ledger.
How does a computerised accounting system ensure that the accounts in the receivables and payables ledgers are exactly equal to trade receivables and payables in the nominal ledger?
In a computerised accounting system, sales and purchase invoices, credit notes and payments are recorded in the receivables and payables ledgers which will then automatically update trade receivables and trade payables in the nominal ledger.
The total of the individual accounts in the receivables ledger at any point in time will be exactly equal to the total included in trade receivables, and the same will apply to the individual accounts in the payables ledger and trade payables.
Why is the receivables ledger important to the business?
Give three reasons why this is practical.
A business must also keep a record of how much money each individual credit customer owes, and what this total debt consists of.
The need for a separate account (sometimes referred to as a ‘personal account’) for each customer is a practical one.
- A customer might ask how much they currently owe. Staff must be able to tell them.
- It is a common practice to send out statements to credit customers at the end of each month, showing them how much they owe, and itemising new invoices or credit notes sent out and payments received during the month.
- The business managers will want to check the credit position of individual customers, and to ensure that no customer is exceeding their credit limit.
What is the payables ledger, why is it important to a business?
The payables ledger, like the receivables ledger, consists of a number of personal accounts.
These are separate accounts for each individual supplier, and they enable a business to keep a continuous record of how much it owes each supplier at any time.
