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KFUPM Cash receipts journal

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					Chapter 1
              The
 Billing/Accounts
 Receivable/Cash
          Receipts
       (B/AR/CR)
           Process
                1
               Learning Objectives
•   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
    B/AR/CR process
•   Achieve a reasonable level of               Process
    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 Spoke on AIS Wheel
• In this chapter we
  spotlight one business
  process, (B/AR/CR)
  process.
• We will describe the
  various users of the
  (B/AR/CR) process, each
  having their own view of
  the enterprise system and
  enterprise database.
• In addition, we will
  analyze the process
  controls related to the
  (B/AR/CR) process.

                              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:
    1. Support the repetitive work routines of the credit
       department, the cashier, and the accounts receivable
       department
    2. Support the problem-solving processes of financial
       managers
    3. 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
                   2. Accounts
                   receivable
                   department
                   (billing) sends
                   invoice to
                   customer.




                             6
Horizontal View B/AR/CR
                   3. Accounts
                   receivable
                   department
                   (billing)
                   informs
                   general ledger
                   process that
                   invoice was
                   sent to
                   customer.



                            7
Horizontal View B/AR/CR
                   4. Customer,
                   by defaulting
                   on amount
                   due, informs
                   credit
                   department of
                   nonpayment.




                            8
Horizontal View B/AR/CR
                   5. Credit
                   department
                   recommends
                   write-off of
                   the receivable
                   and informs
                   accounts
                   receivable
                   department.




                             9
Horizontal View B/AR/CR
                   6. Credit
                   department,
                   by changing
                   credit limits,
                   informs sales
                   order
                   department to
                   terminate
                   credit sales to
                   customer.



                             10
Horizontal View B/AR/CR
                   7. Accounts
                   receivable
                   department
                   informs
                   general ledger
                   process of
                   write-off.




                            11
Horizontal View B/AR/CR
                   8. Customer
                   makes
                   payment on
                   account.




                           12
Horizontal View B/AR/CR
                   9. Cashier
                   informs
                   accounts
                   receivable
                   department
                   (cash
                   applications
                   section) of
                   payment.




                            13
Horizontal View B/AR/CR
                   10. Cashier
                   informs
                   general ledger
                   process of
                   payment.




                            14
  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

                                                                         15
   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.


                                                16
       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.



                                                         17
        Cash Receipts Management
• The following procedures are designed to reduce or
  eliminate the float associated with cash receipts:
  – Checks
     • High-speed electronic equipment is able to read the magnetic ink
       character recognition MICR code and sort checks at speeds
       approaching 100,000 checks per hour
  – A charge card or credit card
     • A third party, for a fee, removes from the collector the risk of
       noncollection of the account receivable.
     • The retailer submits the charges to the credit card company for
       reimbursement.
     • The credit card company bills the consumer
  – A debit card
     • Authorizes the collector to transfer funds electronically from the
       payer’s to the collector’s balance.
     • Some retailers find the notion of direct debit attractive because it
       represents the elimination of float.
                                                                        18
Other solutions to float problems

•   Electronic funds transfer
•   Automated clearing house
•   Lockbox and electronic lockbox services
•   Electronic checks
•   Electronic cash
•   See Technology Summary 11.1

                                          19
         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



                                                          20
B/AR/CR Context Diagram




                          21
B/AR/CR
 Level 0
  DFD




      22
B/AR/CR Process Diagram 1
      Perform Billing




                            23
Sample SAP Invoice Data Screen




                                 24
B/AR/CR Process Diagram 2
Manage Customer Accounts




                            25
B/AR/CR Process Diagram 3
     Receive Payment




                            26
        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




                                                 27
          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.


                                           28
                  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.
                                                      29
  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
                                                30
  E-R
Diagram
(Partial)
   for
B/AR/CR


       31
     Types of Billing Systems
• Post-billing system             • Pre-billing system
   – Invoices are prepared           – Invoice prepared upon
     after goods are shipped           receipt of order (after
     and shipping notice               inventory and credit
     compared to sales order           checks)
     notice                          – There is little or no delay
   – There may be a delay              between receiving order
     between receiving the             and shipping
     order and shipping
   – Post-billing is assumed in
     Ch. 12 diagrams


                                                                 32
Billing
Function
System
Flowchart




            33
 Control
Matrix for
 Billing
Process



             34
  Cash
Receipts
 System
Flowchart



            35
 Cash
Receipts
Control
 Matrix



      36

				
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posted:10/21/2012
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