Apparent inconsistency between reports for a single customer

[David Cousens]

Hi Terry,

If this is a customer of the business you are recording and not a 
supplier of goods and services to that business,any credit advanced to 
the customer should be accured in the Accounts Receivable, not Accounts 
payable.

A transaction for a purchase by the customer will be recorded by a debit 
to the Accounts Receivable account and a credit to the appropriate 
Income account to record sales for the amount of the purchase.

When the customer pays their bill Accounts Receivable is credited by the 
amount of the payment and the Bank account is debited by the same amount.

If you are really recording customers purchases in the Accounts Payable 
it may explain why your accounts don't balance or match and the 
Receivable Ageing report does not match.

  A Receiables Aging report normally presents the totals of the amounts 
in Accounts Receivable which have been unpaid at the specified time from 
the date the credit was advanced to the customer(usually intervals like 
7days, 14 days, 30 days, 60 days, 90 days).  Depending on how you set up 
Accounts Receivable (AR) you may be able to do this either on an 
individual customer basis if you set up sub accounts of AR for each 
customer, but usually it is meant to allow a business to monitor its 
collection of outstanding credit. E.g. if you have a significant 
proportion of your credit advanced outstanding 90 days after it was 
incurred you are likely to be experiencing cash flow problems and most 
of your customers are defaulting on the payments. Interpreting this 
depends strongly on the terms and conditions of sale. If you use a net 7 
days, you expect most of the invoices to be paid before 7 days have 
elapsed from issue of the invoice  and the amounts owing at periods 
greater than this to drop off fairly rapidly. If your terms are 14 days 
then you would expect the Receivables Ageing to peak around 14 days then 
drop off.  The longer a bill is outstanding, the higher the risk that 
the debt will be a bad debt which will have to be written off as a loss.

Accounts Payable is used to record amounts owing to the suppliers of 
goods and services to the business for which you are accounting i.e 
credit advanced to your business by its suppliers.

A transaction involving a purchase by the business from a supplier will 
consist of a credit of the amount of the purchase to the Accounts 
Payable account with a matching debit to an Expense account used to 
record purchases by  your friends business.

  Similarly when your friend pays a bill, that payment transaction is 
recorded by a debit to the Accounts Payable and a credit to the Bank 
Account.

The above description ignores complications like Sales, VAT or GST taxes.

Cheers

David