What account 4010 is for
In wholesale trade and in services, "goods today, money later" is the norm. When the goods are shipped and a settlement document is issued to the buyer, the sale is recorded (para. 383, row 1), but there is no money yet, so a buyer's debt arises in between. This debt is kept in group 4000, which has two sub-accounts (para. 170):
| Sub-account | What is recorded |
|---|---|
| 4010 "Receivables from buyers and customers" | Debt under settlement documents issued to the buyer (para. 171) |
| 4020 "Notes (bills of exchange) received" | Debt secured by the buyer's note (para. 172) |
An asset account: what that means
In the chart of accounts, account 4000 has type "A" (asset). Under paragraph 3, in an asset account the balance and increases are shown on the debit side and decreases on the credit side. A buyer's debt is a resource for the organisation: money that will come in the future. Therefore:
- a settlement document is issued to the buyer and the debt grows: 4010 is debited;
- the buyer pays or the debt is closed in another way: 4010 is credited;
- the debit balance shows the buyers' current total debt.
What goes to the debit side
Under paragraph 173, 4010 is debited with the amount of the settlement document presented to the buyer. The credit side shows the account for revenue from main activities (9000), disposal of fixed assets and other assets (9200) or other income from main activities (9300). VAT charged on the sale is also added to the buyer's debt: Dr 4010 Cr 6410 (para. 275, row 2). That is why the amount in 4010 includes VAT, while the revenue account holds the amount without VAT (para. 383, row 1).
What goes to the credit side
Under the same paragraph, 4010 is credited with payments received and advances offset. From the table in paragraph 174: money coming in (to the cash desk or the bank), offsetting an advance received from the buyer earlier, lodging a claim against the buyer, and writing off an unpaid debt as a loss or against the allowance. The table in paragraph 383 adds two more cases: returned goods (Dr 9040 Cr 4010) and a discount to the buyer (Dr 9050 Cr 4010).
Each buyer separately
Under paragraph 173, analytical accounting for 4010 is kept for each buyer (customer). It is these analytical records that show how much needs to be collected from whom and which debt has been outstanding for a long time.
Points to watch
- If an advance was received. Money the buyer paid in advance sits in 6310 as a liability. Once the goods are shipped and the settlement document is issued, the advance is offset against the debt: Dr 6310 Cr 4010 (para. 174, row 5). If this entry is forgotten, one buyer will show both a debt (4010) and an advance (6310) (practical tip).
- An uncollectible debt. The table gives two routes: if no allowance was created, the debt is written off as a loss: Dr 9430 Cr 4010 (para. 174, row 6); if an allowance for doubtful debts was created, against the allowance: Dr 4910 Cr 4010 (para. 174, row 7). Under paragraph 217, the allowance is created at the end of the reporting year based on the results of a stocktaking of receivables.
- Money in transit. If the buyer has transferred the money but it has not yet arrived in the account: Dr 5710 Cr 4010 (para. 239, row 2).
- A credit balance on 4010 (practical tip). An asset account has a debit balance. If a buyer shows a credit balance, most often an advance from that buyer was recorded in 4010 instead of 6310, so move it to the correct account.
Main journal entries 11
Debit and credit are as in the model table of Appendix 2 to NAS No. 21. The transaction text briefly restates the table row.
| Transaction | Debit | Credit | Source |
|---|---|---|---|
| Goods, products, work and services sold, giving rise to a buyer's debt | 4010 | 9010–9030 | NAS No. 21, para. 174, row 1 |
| VAT (and excise) charged on the sale | 4010 | 6410 | NAS No. 21, para. 275, row 2 |
| Fixed assets and other assets sold, giving rise to a buyer's debt | 4010 | 9210, 9220 | NAS No. 21, para. 174, row 2 |
| The buyer paid its debt (to the cash desk or the bank) | 5010–5530 | 4010 | NAS No. 21, para. 174, row 3 |
| An advance received from the buyer earlier offset when the settlement document was issued to them | 6310 | 4010 | NAS No. 21, para. 174, row 5 |
| A claim lodged against the buyer for products, goods, work and services sold | 4860 | 4010 | NAS No. 21, para. 174, row 4 |
| A buyer's unpaid debt written off as a loss | 9430 | 4010 | NAS No. 21, para. 174, row 6 |
| A buyer's debt written off against the allowance for doubtful debts | 4910 | 4010 | NAS No. 21, para. 174, row 7 |
| Goods (products) sold returned | 9040 | 4010 | NAS No. 21, para. 383, row 8 |
| A sales and price discount granted to the buyer | 9050 | 4010 | NAS No. 21, para. 383, row 9 |
| A buyer's debt settled by a money transfer in transit | 5710 | 4010 | NAS No. 21, para. 239, row 2 |
Example
At the start of the month "Urgut gilam" LLC (a fictional company) has a debit balance of 12,000,000 soums on 4010: this is the debt of a shop that bought carpets last year and then ceased trading. At the end of last year an allowance for doubtful debts was created for this debt (Dr 9430 Cr 4910, para. 221, row 1). During the month:
| No. | Transaction | Dr | Cr | Amount, soums |
|---|---|---|---|---|
| 1 | Carpets shipped to a hotel (excluding VAT) | 4010 | 9010 | 30,000,000 |
| 2 | VAT on this sale (12%) | 4010 | 6410 | 3,600,000 |
| 3 | Advance received earlier from the hotel offset | 6310 | 4010 | 10,000,000 |
| 4 | The hotel transferred payment to the bank | 5110 | 4010 | 20,000,000 |
| 5 | The shop's debt found to be uncollectible and written off against the allowance | 4910 | 4010 | 12,000,000 |
VAT: 30,000,000 × 12% = 3,600,000 soums. The hotel's total debt is 33,600,000 soums; after the advance and the payment, 33,600,000 − 10,000,000 − 20,000,000 = 3,600,000 soums remains.
Analytical records by buyer (debit balance), soums:
| Buyer | Opening | Debit turnover | Credit turnover | Closing |
|---|---|---|---|---|
| Hotel | 0 | 33,600,000 | 30,000,000 | 3,600,000 |
| Closed shop | 12,000,000 | 0 | 12,000,000 | 0 |
| Total 4010 | 12,000,000 | 33,600,000 | 42,000,000 | 3,600,000 |
Check: 12,000,000 + 33,600,000 − 42,000,000 = 3,600,000 soums. Because the shop's debt was closed against the allowance, it did not hit the current month's expenses again: the expense was recognised in the year the allowance was created (example prepared by the author).