Receivable/Cash Receipts (B/AR/CR) Chapter 1 The Billing/Accounts Receivable/Cash Receipts (B/AR/CR) Process

Learning Objectives B/AR/CR Process Understand relationship between B/AR/CR and its environment Understand relationship between B/AR/CR and management problem solving at various levels of the organization Become familiar with some of the technology used in implementing the B/AR/CR process Achieve a reasonable level of understanding of the logical & physical characteristics of the process Gain a foundation level of understanding as to how enterprise systems impact the processing of information in the B/AR/CR process Recognize some plans commonly used to control the B/AR/CR process B/AR/CR Process

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 2a. Accounts receivable department (billing) sends invoice to customer. 2b. and c. Cash applications and general ledger department informed that an invoice has been sent. Accounts receivable and sales accounts are updated.

Horizontal View B/AR/CR 3. Customer payment is received.

Horizontal View B/AR/CR 4a. Cashier deposits payments in bank. 4b. and c. System informs accounts receivable department (cash applications section) of payment.

Horizontal View B/AR/CR 5. Cashier informs general ledger process of payment.

Cash Receipts Management In the billing function, the goal is to get invoices to customers as quickly as possible; with the hope of 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. Float, when applied to cash receipts, is the time between the customer tendering payment and the availability of good funds. Good funds are funds on deposit and available for use.

Technology Supporting B/AR/CR Electronic Bill Presentment and Payment Receipt of Cash Credit, Debit Cards Pay by Touch E-banking Customer Self-Service

The Fraud Connection Many result from improper segregation of duties Custody of cash Recording of cash transactions Lapping Employee pockets cash/check received from customer A So that customer A doesn’t complain about missing payment, employee credits customer B’s payment to A’s account So that customer B doesn’t complain about missing payment, employee credits customer C’s payment to B’s account This scheme comes unraveled when the employee runs out of hours in the day

B/AR/CR Context Diagram

B/AR/CR Level 0 DFD

B/AR/CR Process Diagram 1 Perform Billing

B/AR/CR Process Diagram 2 Manage Customer Accounts

B/AR/CR Process Diagram 3 Receive Payment

Data Descriptions in B/AR/CR A/R master data The accounts receivable master data is a repository of all unpaid invoices issued by an organization and awaiting final disposition. Two types of accounts receivable systems exist: (1) Balance-only system (2) Open item system

Balance-only system In a balance-only system, AR records show a customer’s current balance due, past-due balance, and the finance charges and payments related to the account. Each month, unpaid current balances are rolled into the past-due balances. Electric and gas utility companies typically use balance-only systems.

Open-item system The open-item system appropriate in situations where the customer typically makes payments for specific invoices when those invoices are due. In the AR master data, each record consists of individual open invoices, to which payments and adjustments are applied. On the customer statement of account, a “lump sum” beginning balance is not shown. Instead, all invoices that are yet to be settled continue to be listed, along with payment details. Also, each open invoice is grouped by aging category and aged individually. Monthly, or at specified times, the 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 a/c, sales returns, etc. Journal voucher #, trans. code, authorization Cash receipts data details of customer payments

E-R Diagram (Partial) for B/AR/CR

Billing Function System Flowchart

Control Matrix for Billing Process

Cash Receipts System Flowchart

Cash Receipts Control Matrix