Chapter 11 The Billing/Accounts Receivable/Cash Receipts (B/AR/CR) Process

1. Accounting Information Systems 7e Ulric J.Gelinas and Richard Dull Chapter 11 The Billing/Accounts Receivable/Cash Receipts (B/AR/CR) Process Copyright © 2008 Thomson Southwestern, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license.

2. 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 technology 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 explanation of how business process control plans can accomplish operations and information process control goals.

3. 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

4. Horizontal View B/AR/CR 1. Shipping department informs the accounts receivable department (billing section) of shipment.

5. 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.

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

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

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

9. Advanced technology of billing and collection • Charge card/credit card • Debit card • Electronic fund transfer • Automated clearing house • Financial EDI • Electronic bill presentment and payment (EBPP) systems • Electronic invoice presentment and payment (EIPP)systems • Check 21

10. B/AR/CR Context Diagram

11. B/AR/CR Level 0 DFD

12. B/AR/CR Process Diagram 1Perform Billing

13. Sample SAP Invoice Data Screen

14. B/AR/CR Process Diagram 2Manage Customer Accounts

15. Sample Accounts Receivable Aging Report

16. B/AR/CR Process Diagram 3Receive Payment

17. 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

18. 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.

19. 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.

20. 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

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

22. Digital Imaging Processing Systems • Because of the quantity of paper documents that typically flow through the B/AR/CR process, the ability to quickly scan, store, add information to, and retrieve documents can significantly reduce: • labor costs for filing • costs of physical storage space and structures necessary for storing paper-based files.

23. 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 Post-billing is assumed in Ch. 12 diagrams 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

24. Billing Function System Flowchart

25. Control Matrix for Billing Process

26. Cash Receipts System Flowchart

27. Cash Receipts Control Matrix

28. CSS: Customer Self-Service Systems • CSS is an extension of CRM that allows a customer to complete an inquiry or perform a task without the aid of the organization’s employees • ATMs, Speedpass, Automated telephone systems • A major extension: interconnection of CSS systems with enterprise systems • In some cases, customers can check their orders during the manufacturing process or check inventory before placing orders. • Some of the more advanced systems also allow customers to check production planning for future manufacturing to determine if goods will be available when they are needed. • Why are companies so interested in customer self-service systems? • The payback on such systems is huge • Reduction of staffing needs for call centers is particularly beneficial

29. 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.

30. Advanced technology of billing and collection • Charge card/credit card • Debit card • Electronic fund transfer • Automated clearing house • Financial EDI • Electronic bill presentment and payment (EBPP) systems • Electronic invoice presentment and payment (EIPP)systems • Check 21

31. 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