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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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chapter 11 the billing accounts receivable cash receipts b ar cr process
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
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
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
Horizontal View B/AR/CR

1. Shipping department informs the accounts receivable department (billing section) of shipment.

horizontal view b ar cr1
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 cr2
Horizontal View B/AR/CR

3. Customer makes payment on account.

horizontal view b ar cr3
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 cr4
Horizontal View B/AR/CR

5. Accounts receivable (cash applications) informs general ledger process of payment.

cash receipts management
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 management1
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
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
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
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
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 cr1
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
types of billing systems
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