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The Billing/Accounts


Chapter 1 The Billing/Accounts ... employee credits customer C s payment to B s account This scheme comes unraveled when the employee runs out of ... 8. Customer ... – PowerPoint PPT presentation

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Title: The Billing/Accounts

Chapter 1
The Billing/Accounts Receivable/Cash Receipts
(B/AR/CR) Process
Learning Objectives
  • Understand relationship between B/AR/CR and its
  • 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
  • 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
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.

  • 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
Horizontal View B/AR/CR
2. Accounts receivable department (billing) sends
invoice to customer.
Horizontal View B/AR/CR
3. Accounts receivable department (billing)
informs general ledger process that invoice was
sent to customer.
Horizontal View B/AR/CR
4. Customer, by defaulting on amount due, informs
credit department of nonpayment.
Horizontal View B/AR/CR
5. Credit department recommends write-off of the
receivable and informs accounts receivable
Horizontal View B/AR/CR
6. Credit department, by changing credit limits,
informs sales order department to terminate
credit sales to customer.
Horizontal View B/AR/CR
7. Accounts receivable department informs general
ledger process of write-off.
Horizontal View B/AR/CR
8. Customer makes payment on account.
Horizontal View B/AR/CR
9. Cashier informs accounts receivable department
(cash applications section) of payment.
Horizontal View B/AR/CR
10. Cashier informs general ledger process of
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 organizations 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

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
  • labor costs for filing
  • costs of physical storage space and structures
    necessary for storing paper-based files.

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
  • 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

Cash Receipts Management
  • The following procedures are designed to reduce
    or eliminate the float associated with cash
  • 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 payers to the
    collectors balance.
  • Some retailers find the notion of direct debit
    attractive because it represents the elimination
    of float.

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

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 doesnt complain about missing
    payment, employee credits customer Bs payment to
    As account
  • So that customer B doesnt complain about missing
    payment, employee credits customer Cs payment to
    Bs 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 1Perform Billing
Sample SAP Invoice Data Screen
B/AR/CR Process Diagram 2Manage Customer Accounts
B/AR/CR Process Diagram 3Receive 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
    customers 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
  • 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

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
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
  • 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

Billing Function System Flowchart
Control Matrix for Billing Process
Cash Receipts System Flowchart
Cash Receipts Control Matrix
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