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ACCA Applied Knowledge · Financial Accounting

Receivables and Payables for ACCA Financial Accounting

Receivables and payables covers how you record and control what customers owe you and what you owe suppliers. You use control accounts, sales tax, irrecoverable debts, allowances, discounts and reconciliations. To solve questions, identify each item, pick the correct ledger side, post it, then check the balance against the list or statement.

What this chapter covers

This chapter is about the two biggest working balances in most businesses: money customers owe you (trade receivables) and money you owe suppliers (trade payables). You learn how the general ledger summarises these in control accounts, how sales tax changes the amounts you post, and how you deal with debts that will not be paid.

You also learn how to value receivables fairly. That means writing off irrecoverable debts, recording debts recovered later, and setting an allowance for receivables. Then you handle settlement discounts, contra entries between a customer who is also a supplier, and the reconciliation of your payables ledger to a supplier statement.

The chapter links to many other parts of FA. Bookkeeping and double entry come first, because every item here is a debit and credit. Receivables and payables then feed the trial balance, the statement of profit or loss and the statement of financial position. Bank reconciliations, accounts preparation and consolidations all rely on the same accuracy. Section A questions on this chapter are quick marks if your method is secure.

Receivables and payables appear in the objective test questions and also inside the longer accounts preparation question, where you must adjust the trial balance for irrecoverable debts and allowances. The calculations are short and rule-based, so they reward practice more than deep theory. If you learn the double entries and the order of adjustments, you can answer most questions in under two minutes and bank marks that free up time for harder topics like consolidations.

Receivables and payables: topics in the order to study them

  1. 1Sales and Purchases Ledger Control AccountsStart here because it shows how the ledgers and the general ledger fit together, and every later topic posts into these accounts.
  2. 2Sales Tax in Recording Receivables and PayablesNext, because sales tax changes the gross amounts in receivables and payables and you need it for every later calculation.
  3. 3Irrecoverable Debts and Debts RecoveredOnce you can post to the control account, learn how a debt that will not be paid is written off and how a later recovery is recorded.
  4. 4Allowance for ReceivablesThis builds on write-offs, since the allowance is calculated on receivables after irrecoverable debts are removed.
  5. 5Discounts and Contra EntriesNow you add settlement discounts and set-offs, which adjust control account balances in the same way as other entries.
  6. 6Supplier Statement ReconciliationFinish with this, because it uses everything above to explain why your payables ledger differs from a supplier's records.

How to prepare Receivables and payables

Aim to make the double entries automatic, then practise the question types in the computer-based format.

  1. Learn the layout of a receivables control account and a payables control account, and which items go on the debit and credit side of each.
  2. Practise sales tax with gross, net and tax amounts until you can move between them without hesitation, and remember that tax is not income or expense for a registered business.
  3. Write out the double entries for an irrecoverable debt, a debt recovered, and an increase or decrease in the allowance, then test yourself from memory.
  4. Do number entry questions on the allowance, always deducting irrecoverable debts first and then applying the percentage to the remaining receivables.
  5. Work through discounts and contras with small examples, noting which entries affect the control accounts and which only the ledger accounts.
  6. Reconcile a supplier statement by listing items in your ledger but not on the statement, and the reverse, then explain each difference.
  7. Finish with timed mixed questions, using multiple choice, multiple response and number entry, and review every wrong answer.

Common mistakes in Receivables and payables

  • Posting the whole allowance to profit or loss each year instead of only the change.

    Fix: Compare the new required allowance with the opening allowance, and post only the difference.

  • Applying the allowance percentage before deducting irrecoverable debts.

    Fix: Write off known bad debts first, then calculate the allowance on the remaining receivables.

  • Putting items on the wrong side of a control account.

    Fix: Ask whether the item raises or lowers the balance. Increases to receivables go on the debit side, decreases on the credit side. Payables work the opposite way.

  • Including sales tax in income or expenses.

    Fix: Separate net amount and tax for each invoice, then post tax to the sales tax account.

  • Treating a contra as a cash movement.

    Fix: Remember a contra is a set-off between ledgers. Debit payables and credit receivables with no bank entry.

  • Reading a multiple response question and selecting the wrong number of answers.

    Fix: Underline the required number before answering and confirm you have selected exactly that many.

Last-day revision: Receivables and payables

  • Receivables control account: debit opening balance, credit sales, dishonoured cheques and cash refunds to customers; credit cash received, discounts allowed, sales returns, irrecoverable debts written off and contras.
  • Payables control account: credit purchases; debit payments, discounts received and returns.
  • The control account total should agree to the sum of the individual ledger balances.
  • Sales tax collected is a liability to the tax authority, not income for a registered trader.
  • Irrecoverable debt: debit irrecoverable debts expense, credit receivables.
  • Debt recovered after write-off: reinstate the debt with debit receivables and credit irrecoverable debts expense. On receipt, debit bank and credit receivables.
  • Allowance is calculated on receivables after deducting specific irrecoverable debts.
  • Only the change in the allowance goes to profit or loss: increase is an expense, decrease is a credit.
  • Receivables are shown net of the allowance in the statement of financial position.
  • A contra reduces both receivables and payables by the same amount.
  • Reconcile a supplier statement by identifying timing differences, errors and disputed items.

Receivables and payables practice questions

Receivables and payables in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Receivables and payables: frequently asked questions

What is a control account in ACCA FA?

A control account is a general ledger account that summarises the total of many individual customer or supplier accounts. You use it to check that the ledger totals are correct. If the control account and the list of balances disagree, there is an error to find.

How do I calculate an allowance for receivables?

First deduct any irrecoverable debts to be written off from the receivables balance. Then apply the allowance percentage to what is left. Compare this with the existing allowance, and post only the increase or decrease to profit or loss.

What is the difference between an irrecoverable debt and an allowance?

An irrecoverable debt is a specific debt you believe will not be paid, so you remove it from receivables. An allowance is an estimate for debts that may not be paid, and it reduces receivables without removing individual balances.

How is this chapter tested in the FA exam?

It is tested in Section A as multiple choice, multiple response and number entry questions. It also appears in the Section B accounts preparation question, where you adjust the trial balance for irrecoverable debts and allowances.