The accounts receivable trial balance is a negative balance that totals all credits and debits related to a company’s outstanding debts owed by customers who have not yet completed payment. It is an important calculation for accurate record keeping and is part of a company’s trial balance sheet.
The accounts receivable trial balance is an accounting tool used to total all credits and debits related to a company’s accounts receivable. Accounts receivable are all outstanding debts owed by customers who have purchased goods and services from a company but have not yet completed payment. Since there are usually outstanding debts at certain times from certain customers, this balance is usually a debit account, which means the total is negative. This balance is part of the trial balance sheet compiled by a company’s accounting department, a document intended to detail all of a company’s credits and debits, which, if the bookkeeping is accurate, should balance to zero.
It is very rare for a company that deals in sales to receive all of its payments exactly at the time the purchases are made. Instead, companies extend credit to their customers and customers, allowing them to pay later for services or goods purchased at the current time. For accounting purposes, it is important that the relationship between purchases and payments is well documented, so the accounts receivable trial balance is an important calculation.
When compiling the accounts receivable trial balance, it is important that accountants understand the principles of accounts receivable accounting. If a business makes a sale but does not receive payment, accounts receivable are debited and the sales are credited. Only when payment is actually received for the items purchased is the accounts receivable ledger credited for the amount of cash received.
As a result, since a business typically maintains multiple credit relationships in the course of business, the accounts receivable trial balance will almost always be negative during the time period it is taken. To calculate this particular trial balance, an accountant simply adds up all the accounts receivable credits and subtracts all the debits. Record keeping must be accurate to keep track of payments that may be made much later than when the purchase was recorded.
The accounts receivable trial balance is only one part of a company’s trial balance. This sheet adds up all the balances of the various company accounts, such as cash, accounts payable, sales, etc. When all the various positive and negative balances are combined, the final result should be zero. If that is not the case, bookkeepers should review the accounts and ledgers to see where errors might have been made.
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