◊ Sales & Accounts Receivable Process

The purpose of this article is to illustrate how each step of the Sales/Accounts Receivable process affects the General Ledger. This article itself is not intended to be a tutorial on how to perform these steps. For each step in the process I will cross-reference to the GL Transaction View which will show the journal entries created by the transaction. These journal entries are automatically created by AcctVantage when the related records are posted.

Also, there are many circumstances in which different (or additional) entries will be created during this cycle. For the purposes of this lesson, I've chosen relatively basic data to use.

1. The Sales Order

The first step in the Accounts Receivable process is to issue an Invoice to a Client. The issuance of a Sales Order itself has no effect on the GL...the Order Status must be set to Shipped/Invoice and then you must Post the Sales Order to turn it into an Invoice before any GL Transactions are created.

The Sales Order

Effect of a Sales Order on the General Ledger

Sales - Bike (income) is increased with a CREDIT.

  • On this Sales Order we sold $3,849.50 worth of merchandise. Income was increased by that same amount.

Cost of Goods Sold (expense) is increased with a DEBIT.

  • The value of the items sold is $1,625.35. An expense is not recorded at the time the Inventory is purchased so this amount gets expensed during this step.

Accounts Receivable (asset) is increased with a DEBIT.

  • The Client has an open AR account so we charge the amount of the Order to Accounts Receivable.

Inventory - Finished (asset) is decreased with a CREDIT.

  • This Inventory is no longer held in stock so we need to reduce this asset account by the value of the items sold.
Effect of a Sales Order on the General Ledger

2. The Receipt

After a sale is recorded, a Sales Invoice will be sent to the Client. Sometime in the future, the Client will remit a payment for the Invoice Amount. This will be processed in AcctVantage as a Receipt. The recording of a Receipt for a Sales Order has no effect on the GL...you must Post the Receipt before any GL Transactions are created.

The Receipt

Effect of a Receipt on the General Ledger

Cash - Checking (asset) is increased with a DEBIT.

  • Payment was recorded in AV in the form of a Receipt for the amount of the Order. The value of the bank account [to which this Receipt will be deposited] is increased by $3,849.50.

Accounts Receivable (asset) is decreased with a CREDIT.

  • The amount that was previously charged to Accounts Receivable is now reversed to reflect the Client's payment.
Effect of a Receipt on the General Ledger