Before entering accounts receivable (AR) in the general ledger it is first posted as a subsidiary or sub-ledger entry. All AR transactions are entered, or posted, in this ledger. Then they are also posted in the general ledger with transactions from other sub-ledgers such as accounts payable or cash. Whenever a company makes a sale for which an invoice is generated, the amount is entered into accounts receivable as a debit.
After entering a new item for accounts receivable in the general ledger, it must also be recorded as a credit in the revenue category. Once payment is received, then it is recorded as a debit for accounts receivable in the general register. A credit for the same amount will be posted in the cash category.
In essence, entering accounts receivable in the general ledger provides record of credit given to a customer. It is counted as an asset, even though payment has not yet been received. By putting it in the separate record, it is possible to easily track all receivables, while entering the information in the general ledger provides an overview of all accounts and how they work together.
It is common to enter accounts receivable in the general ledger at the same time as it is entered in the sub-ledger. In most cases, AR information for the day is gathered and then posted as a whole to the general ledger. This helps to ensure that all other information related to the AR entry, such as cash, revenue, and inventory is properly balanced in the general ledger. Missing elements can cause confusion and inaccuracies, particularly when any of these areas are handled by different people.
The way an accounts receivable in the general ledger is posted depends upon the system used for entry. If the accountant is using paper files or books, then the entry must be made in both the sub-ledger and the general ledger. Electronic systems such as spreadsheets or computer programs may have an option for entering this information simultaneously in both places. This method is not as common for larger companies with multiple accounting staff, as the day’s end compilation and posting to general ledger tends to be easier to track.
The general ledger is a central location for all of the information also entered separately in sub-ledgers. In addition to accounts receivable, some of the most common categories include cash, accounts payable, and payroll. Some of the other possible categories are inventory control, order entry, and fixed costs accounting.