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Accounting Information Systems 8e Ulric J. Gelinas and Richard Dull. Chapter 11 The Billing/Accounts Receivable/Cash Receipts (B/AR/CR) Process. © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
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Accounting Information Systems 8e Ulric J.Gelinas and Richard Dull Chapter 11 The Billing/Accounts Receivable/Cash Receipts (B/AR/CR) Process © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use
Learning Objectives • Describe the relationship between the B/AR/CR process and its business environment. • Illustrate the potential of the B/AR/CR process to assist management decision making. • Summarize how enterprise systems, e-business and other technologies can improve the effectiveness of the B/AR/CR process. • Depict the logical and physical characteristics of the B/AR/CR process. • Prepare a control matrix for some typical billing and cash receipts processes, including an explanation of how business process control plans can accomplish operations and information process control goals. 2
Introduction The billing/accounts receivable/cash receipts (B/AR/CR) process is an interacting structure of people, equipment, methods, and controls designed to create information flows and records that accomplish the following: • Support the repetitive work routines of the credit department, the cashier, and the accounts receivable department. • Support the problem-solving processes of financial managers. • Assist in the preparation of internal and external reports.
Horizontal View B/AR/CR 1. Shipping department informs the accounts receivable department (billing section) of shipment.
Horizontal View B/AR/CR 2. Accounts receivable department (billing) sends invoice (2a) to customer, accounts receivable department (cash applications [2b]), and general ledger process (2c).
Horizontal View B/AR/CR 3. Customer makes payment on account.
Horizontal View B/AR/CR 4. Cashier sends deposit to bank (4a) and informs accounts receivable department (cash applications [4b]) and general ledger process (4c) of payment.
Horizontal View B/AR/CR 5. Accounts receivable (cash applications) informs general ledger process of payment.
Cash Receipts Management • In the billing function, the goal is to get invoices to customers quickly, hopefully reducing the time it then takes to obtain customer payments. • Having the B/AR/CR process produce invoices automatically helps ensure that invoices are sent to customers shortly after the goods have been shipped. • Electronic bill presentment and payment (EBPP) systems help achieve more timely billing and cash receipts at reduced costs (Technology Summary 11.1). • Treasurer’s goal is to reduce float - the time between the customer tendering payment and the availability of good funds (funds on deposit and available for use).
Cash Receipts Management • Procedures designed to reduce or eliminate the float associated with cash receipts: • Credit card • For a fee, a third party removes from the risk of non-collection of the account receivable. • Collecting company submits charges to the credit card company for immediate payment. • The credit card company bills the consumer. • Debit card • Authorizes the collector to transfer funds electronically from the payer’s bank account to the collector’s bank account. • Electronic banking websites & customer self-service systems • Convenient ways for customers to pay bills (electronic banking website) or obtain information and correct errors (customer self-service systems).
The Fraud Connection • B/AR/CR process provides opportunity to manipulate final results. • Revenues and AR can be inflated by violating GAAP revenue recognition rules. • Improper segregation of duties between handling cash and recording cash transactions can result in misappropriating cash: • Lapping occurs when funds being paid by one customer are stolen and the theft is covered up by applying funds from another customer and so on. • Some lapping frauds become so large that the employee has to manipulate the accounting records after hours. • Rotation of duties and forced vacations help prevent this type of fraud.
Data Descriptions in B/AR/CR • A/R master data • Repository of all unpaid invoices issued by an organization and awaiting final disposition. • Two types of accounts receivable systems exist: (a) Balance-forward (b) Open-item
Balance-forward System • AR records show a customer’s balance - current and past-due and current account activity. • Monthly statements display previous balance, payments, and balance forward which is added to new charges to get the current balance due. • Unpaid current balances are rolled into the past-due balances. • Electric and gas utility companies typically use balance-only systems.
Open-item System • Appropriate where invoices are prepared and sent for each sale. • In the AR master data, each record consists of individual open invoices, to which payments and adjustments are applied. • Periodic statements list invoices (new and settled within the current period) and payment details. • Each open invoice is grouped by aging category and aged individually. • Monthly, or at specified times, customer accounts are aged and an aging schedule is printed.
Data Descriptions in B/AR/CR • Sales event data • one or more invoice records (details contained in invoice data) • A/R adjustments data • write-offs, estimated doubtful accounts, sales returns, etc. • journal voucher #, transaction code, authorization • Cash receipts data • details of customer payments
Post-billing system Invoices are prepared after goods are shipped and shipping notice compared to sales order notice. There may be a delay between receiving the order and shipping. Pre-billing system Invoice prepared upon receipt of order (after inventory and credit checks). There is little or no delay between receiving order and shipping. Types of Billing Systems
