What is a customer account in accounting and how do you incorporate it into your balance sheet?
What is an accounts receivable in accounting? Among the many terms used in the field, accounts receivable, recorded in account 411 of the balance sheet, are a common one.
But how do accounts receivable work, and how do they fit into the chart of accounts? What should be entered to comply with accounting principles? And how can you keep track of your accounts receivable? We explain everything in this article.
What is an accounts receivable in accounting?
Accounts receivable in accounting: definition
The client account is one of the accounts in class 4 of the balance sheet accounts in the general chart of accounts.
It records all the charges that you invoice to your customers following the sale of goods or the provision of services, for example :
- it includes invoices issued but not yet paid;
- it allows you to accurately trace the exact amount invoiced.
💡 You can create as many accounts as you like; one for each customer is common practice.
These accounts give you an overview of financial flows from your customers and identify all outstanding receivables. An essential tool for keeping your accounts up to date.
Differences between credit and debit customer accounts
What are debit and credit in accounting? Very simply, there are two columns in a customer account:
- The "debit" column refers to amounts invoiced to customers that have not yet been paid. The idea is to collect the sums owed by your customers on time. This will enable you to pay your current liabilities.
- The "credit" column records the amounts paid by customers and therefore received by your company. The idea is to match the exact amount in the debit column to the exact amount in the credit column.
Accounts receivable and payable in 2024: an in-depth understanding
With the recent changes in accounting, it has become even more relevant to clearly understand the distinctions and links between accounts receivable (411) and accounts payable (401).
Fundamental Distinctions:
- Nature of Accounts:
- Customer account (411): Represents the company's receivables from its customers. Appears on the assets side of the balance sheet, as it is a potential source of cash for the company.
- Supplier account (401): Represents the company's debts to its suppliers. Appearing on the liabilities side of the balance sheet, it shows the amounts that the company has to pay.
Similarities and Joint Management:
- Interdependence in Cash Flow: In 2024, accounting software will offer an integrated view of these accounts, highlighting their interdependence and their joint impact on the company's cash flow.
- Automated management: Advanced functionalities enable simultaneous and consistent management of these accounts, making it easier to monitor incoming and outgoing financial flows.
Impact of technological innovations:
- Accurate and Predictive Analysis: Modern accounting tools provide detailed analyses of these accounts, enabling working capital requirements to be forecast and payment and collection strategies to be optimised.
What is account 411 in the chart of accounts?
Focus on account receivable 411
In accounting terms, trade receivables are attached to account 411 on the balance sheet under the heading " Trade receivables" .
Account 411 is actually a sub-account, i.e. a sub-category of the class 4 accounts on the balance sheet. These class 4 accounts are called third-party accounts .
💡 Note: in accounting, the supplier account is also a third-party account. It is known as account 401 "Trade payables".
However, the "trade receivables" account and the "trade payables" account do not appear in the same parts of the balance sheet:
- Accounts receivable appear on the assets side of the balance sheet, in the receivables section :
Dougs
- Accounts payable appear on the liabilities side of the balance sheet at under operating liabilities:
The customer account in the balance sheet
ℹ️ Please note: The balance sheet is made up of :
- Class 1 to 5 accounts, corresponding to balance sheet accounts,
- class 6 to 7 accounts, corresponding to income and expense accounts
- class 8 accounts, which are special accounts.
👉 To understand the accounts listed on the chart of accounts, refer to the General Chart of Accounts, better known as the PCG. The PCG brings together the accounting standards applied in France and formalises the way in which companies and organisations keep their accounts.
How do you keep track of your customer accounts?
Recording invoices in the customer account
First of all, you should be aware that the sale of services or goods is invoiced exclusive of tax (excluding VAT) if your company is subject to VAT.
How do you enter an invoice in your accounts?
- Issue a sales invoice.
- Debit account 4181 in your accounting ledger. This account 4181 corresponds to the "Customers - invoices to be issued" account, which is debited for the amount of the goods or services delivered, excluding VAT,
- Credit the amount of the invoice to account 44 587 entitled "Sales tax on invoices to be issued" and to one of the following two accounts:
- account 706 "Services supplied", or
- or account 707 "Sales of goods".
Accounting entries are made :
- either manually, if you use an Excel spreadsheet for your accounting,
- or automatically if you use accounting software.
👉 Not all companies are allowed to do their accounting in Excel. Are you one of them?
Lettering a customer account
As we saw earlier, the purpose of a customer account is to match the credit amount to the debit amount. This is precisely what lettering is used for in accounting.
Lettering is a technique that assigns a letter of the alphabet to a single transaction. The same letter is assigned to the transaction in the debit column and to the transaction in the credit column.
Example:
- An invoice has been issued to a customer.
- The amount appears in the debit column only. This amount corresponds to the debt owed by the customer.
- When the payment is made, another line is automatically created with an amount that appears in the "credit" column.
The lettering system then associates the two lines with the corresponding "debit" and "credit" amounts.
Lettering has several advantages:
- identifying potential errors
- finding out whether a customer is up to date with their payments
- follow up and follow up with customers if necessary.
Good to know: In 2024, there will be significant advances in accounts receivable lettering, thanks to advanced automation technologies. Most of today's software is capable of performing automatic lettering, assigning letters to transactions and accurately matching debits and credits.
Managing your accounts receivable with the right software: developments in 2024
If you manage your accounts without a chartered accountant and would like to automate the monitoring of your accounts receivable, some accounting software could be useful on a day-to-day basis.
Among other things, accounting software allows you to:
- monitor your customers' receivables and invoice payments,
- dunning customers if necessary,
- collect all your suppliers' invoices from your e-mail inbox, your customer areas or even Slack,
- perform bank reconciliations in real time,
- automate accounting entries and limit data entry, and the human errors associated with it.
Some examples of software:
- iPaidThat
- ISACOMPTA - AGIRIS
- Sinao
- SumUp Invoices
In 2024, adopting state-of-the-art accounting software is no longer a luxury, but a necessity for any business wishing to optimise its financial management and look to the future with confidence. Adapting and embracing these changes is crucial to maintaining efficient and up-to-date accounts receivable.
The key role of the customer account
The customer account is a key account in your accounts. It gives you a precise view of your customers' receivables, as well as the incoming flows that will enable you to finance your current liabilities.
It's now up to you to use the best practices listed in this article to monitor your accounts receivable on a daily basis.
Article translated from French