Receivables and payables ledger

What it means

A receivables and payables ledger is a supporting record in single-entry bookkeeping and in a sole trader's tax records. It tracks who owes the business, whom the business owes, how much, when it is due and when the invoice was paid, which the cash journal alone does not capture.

The cash journal records only actual receipts and payments, the movement of money. An invoice that has been issued but not yet paid does not appear in it. That is why receivables and payables must be recorded separately, so the owner knows what money is still expected and what has to be paid.

In practice businesses often keep two books, one for receivables and one for payables, or a single invoice book split into issued and received documents. At year end their data are carried into the statement of assets and liabilities, which forms part of the financial statements.

How it works in practice

The ledger records the document number, counterparty, issue date, due date, amount and, on payment, the date and method. If an invoice is paid in instalments, each payment is recorded separately so it is clear how much remains outstanding.

The ledger also serves cash management. A regular overview of overdue receivables shows which customers need a reminder, and an overview of payables helps schedule payments so that the business does not incur penalties or late payment interest.

In a sole trader's tax records, the receivables and payables ledger is the basis for adjusting the tax base when the business closes or switches from flat-rate to actual expenses. Unpaid receivables and payables affect which income and expenses are taxed.

What to watch out for

For invoices in a foreign currency, the ledger must also show the conversion to euros, and on payment the FX difference must be taken into account. Otherwise the balance of receivables will not match what the counterparty actually paid, and the statement of assets and liabilities will be inaccurate.

Unpaid receivables must not simply be deleted from the ledger. If they are irrecoverable, they must be written off on the basis of a document and in line with tax rules. For time-barred and disputed debts, it helps to have documented reminders and the steps the business has taken.