Debtors, also known as accounts receivable, represent individuals or entities that owe money to a business for goods sold or services rendered on credit. Properly recording and managing transactions involving debtors is crucial for maintaining accurate financial records and ensuring timely collection of outstanding payments. Below are examples illustrating various debtor-related transactions, including credit sales, payments received, discounts allowed, and bad debts.
1. Scenario: Transactions Involving Debtors
XYZ Company engages in the following transactions with its customers (debtors) during the month of January:
- Jan 1: Opening balance – Customer A owes $5,000.
- Jan 5: Sold goods on credit to Customer A for $3,000.
- Jan 10: Received $4,000 from Customer A.
- Jan 15: Allowed a cash discount of $200 to Customer A for early payment.
- Jan 20: Customer B purchased goods on credit worth $2,500.
- Jan 25: Customer A returned goods worth $500 (sales return).
- Jan 30: Wrote off $1,000 as bad debt from Customer C.
2. Journal Entries for Debtor Transactions
| Date | Particulars | Debit (Dr.) | Credit (Cr.) | Narration |
|---|---|---|---|---|
| Jan 5 | Accounts Receivable A/c (Customer A) Sales A/c |
$3,000 | $3,000 | Being goods sold on credit to Customer A. |
| Jan 10 | Cash A/c Accounts Receivable A/c (Customer A) |
$4,000 | $4,000 | Being cash received from Customer A. |
| Jan 15 | Discount Allowed A/c Accounts Receivable A/c (Customer A) |
$200 | $200 | Being discount allowed to Customer A for early payment. |
| Jan 20 | Accounts Receivable A/c (Customer B) Sales A/c |
$2,500 | $2,500 | Being goods sold on credit to Customer B. |
| Jan 25 | Sales Returns A/c Accounts Receivable A/c (Customer A) |
$500 | $500 | Being goods returned by Customer A. |
| Jan 30 | Bad Debts A/c Accounts Receivable A/c (Customer C) |
$1,000 | $1,000 | Being amount written off as bad debt from Customer C. |
3. Ledger Accounts for Debtors
A. Accounts Receivable Ledger (Customer A)
| Date | Details | Debit (Dr.) | Credit (Cr.) | Balance |
|---|---|---|---|---|
| Jan 1 | Opening Balance | $5,000 | $5,000 Dr. | |
| Jan 5 | Credit Sales | $3,000 | $8,000 Dr. | |
| Jan 10 | Cash Received | $4,000 | $4,000 Dr. | |
| Jan 15 | Discount Allowed | $200 | $3,800 Dr. | |
| Jan 25 | Sales Returns | $500 | $3,300 Dr. |
B. Accounts Receivable Ledger (Customer B)
| Date | Details | Debit (Dr.) | Credit (Cr.) | Balance |
|---|---|---|---|---|
| Jan 20 | Credit Sales | $2,500 | $2,500 Dr. |
C. Accounts Receivable Ledger (Customer C)
| Date | Details | Debit (Dr.) | Credit (Cr.) | Balance |
|---|---|---|---|---|
| Jan 30 | Bad Debt Written Off | $1,000 | $0 |
4. Sales Ledger Control Account (Summary of Debtors)
| Date | Details | Debit (Dr.) | Credit (Cr.) | Balance |
|---|---|---|---|---|
| Jan 1 | Opening Balance | $5,000 | $5,000 Dr. | |
| Jan 5 | Credit Sales (Customer A) | $3,000 | $8,000 Dr. | |
| Jan 20 | Credit Sales (Customer B) | $2,500 | $10,500 Dr. | |
| Jan 10 | Cash Received | $4,000 | $6,500 Dr. | |
| Jan 15 | Discount Allowed | $200 | $6,300 Dr. | |
| Jan 25 | Sales Returns | $500 | $5,800 Dr. | |
| Jan 30 | Bad Debts Written Off | $1,000 | $4,800 Dr. |
5. Managing Debtor Transactions
Properly recording and managing transactions involving debtors is essential for maintaining accurate financial records and ensuring the timely collection of outstanding payments. By using detailed personal accounts and summarizing them in control accounts, businesses can monitor their accounts receivable efficiently, detect discrepancies, and make informed decisions to improve cash flow and financial stability.