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Chapter 7 Customer Order and Account Management Business Processes.

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Presentation on theme: "Chapter 7 Customer Order and Account Management Business Processes."— Presentation transcript:

1 Chapter 7 Customer Order and Account Management Business Processes

2 Presentation Outline I.Sales Order Processing II.Cash Received on Account III.Other Account Receivable Processing IV.Lock-Box Collection Systems V.Cash Sales

3 I. Sales Order Processing A.Order Entry B.Credit Approval C.Finished Goods D.Shipping E.Billing F.Accounts Receivable G.General Ledger

4 A. Order Entry 1.Customer order is input into the order database to create an order. 2.Master price list is consulted to determine management approved prices. 3.Order database is updated with pricing information. 4.Sales order is generated. Customer Order Enter Order Create Order Order Database Master Price List Sales Order

5 B. Credit Approval 1.New sales orders are retrieved for sales on account. 2.Credit department evaluates new customers using a credit check. Predetermined credit limits often provide general authorization for established customers. 3.Credit authorization must be separated from sales order department to minimize sales to high risk customers. 4.Sales order will not be approved until credit is approved. Order Database Retrieve New Orders Sales Order Approve Credit Processing Credit Files Approved Sales Order

6 C. Finished Goods 1.A picking list is prepared for approved sales orders in order to identify goods to be selected from finished goods. 2.The order is picked using the picking list. Inventory records and the order database are updated. 3.Picking list accompanies goods to shipping. 4.Shipping should acknowledge receipt of goods transferred. Order Database Prepare Picking List Picking List Pick Order Delivery Processing Inventory Database Picking List With Goods To Shipping

7 D. Shipping 1.Shipping accepts the order for shipment after matching the order per the picking list from finished goods with the packing list input from order entry and approved by the credit dept. 2.The order database is updated. 3.A bill of lading is prepared to document the agreement with the shipper (See Figure 7.5 on page 250) 4.Copies of the packing list and bill of lading are usually included with the customer’s order when it is shipped. From Finished Goods Picking List With Goods Order Database Packing List Match Sales Order Delivery Processing Packing List With Goods Bill of Lading To Customer

8 E. Billing 1.Billing completes the order process by preparing invoices for orders on the billing list. 2.Invoice is recorded in the sales journal, and notice is sent to accounts receivable to update individual customer accounts. 3.Periodically, a journal voucher is prepared and forwarded to general ledger in order up update the control account for accounts receivable. Order Database Billing List Prepare Invoice Processing Invoice To Customer Periodically Prepare Journal Entry Journal Voucher To General Ledger

9 F. Accounts Receivable 1.A summary of invoiced orders in the order database is used to prepare an invoice posting list to update individual customer accounts for purchases. 2.A summary of the total of the postings to individual customer accounts (control total) is sent to general ledger. 3.Billing does not have access to the account receivable ledger. 4.Accounts receivable also sends periodic customer statements. Statements Order Database Prepare Posting List Invoice Posting List Review Post Invoice Posting Accounts Receivable Ledger Control Total To General Ledger To Customers

10 G. General Ledger 1.General ledger compares the total sales invoiced from billing to the total sales posted to individual customer accounts from accounts receivable. These amounts must match before the control accounting for accounts receivable in the general ledger is updated. 2.The total is posted as a debit to accounts receivable (control account in the general ledger) and a credit to sales. Control Total From Accounts Receivable Journal Voucher From Billing Compare Post General Ledger Processing General Ledger

11 II. Cash Received on Account A.Mailroom B.Cash Receipts C.Accounts Receivable D.General Ledger E.Internal Audit and the Bank Reconciliation Note: Flowcharts in this section may not contain some aspects of the figures that they represent from the text. Space considerations required an abbreviated version on the slides. Please see the text for the complete diagrams.

12 A. Mailroom Record keeping and custody of asset responsibilities are separated by having checks and remittance advices separated in the mailroom From Customers Remittances on Account Open Mail Remittance Advices Checks 2 1 Remittance List Prepare Remittance List Remittance Advices Forward to Accounts Receivable B Restrictlively Endorse and Total Control Total Checks Forward to Cash Receipts A

13 B. Cash Receipts Deposit is completed and journal voucher is sent to general ledger (Debit - Accounts Receivable and Credit - Sales). A From Mailroom Checks Remittance List Control Total From Cash Sales Cash Prepare Deposit Slip Cash Checks Deposit Slip Approve Deposit Slip Deposit Receipts Intact C To Bank Remittance List Post Receipts And Prepare Journal Voucher Journal Voucher Forward to General Ledger D To General Ledger

14 C. Accounts Receivable Remittance advices are used to update the accounts receivable subsidiary ledger. A control total is forwarded to General Ledger. B From Mailroom Remittance Advices Remittance List Post to Customer Accounts Receivable Ledger Remittance List Total Postings Control Total Approve Postings Control Total Forward to General Ledger D

15 D. General Ledger General Ledger compares the journal entry (Debit – Cash and Credit – Accounts Receivable) per the journal voucher from cash receipts, with the total credits to the subsidiary ledger as shown on the control total from accounts receivable. If the totals agree, the journal entry is posted into the general ledger. Control Total E From Accounts Receivable D From Cash Receipts Journal Voucher Compare Totals and Post General Ledger

16 E. Internal Audit and The Bank Reconciliation Internal audit performs an independent reconciliation of the bank account. Internal AuditBank C From Cash Receipts Deposit Slip Deposited Cash Checks Validate Deposit Slip Deposit Slip File Bank Statement Bank Statement Reconcile Bank Statement

17 III. Other Account Receivable Processing A.Sales Returns B.Sales Allowances C.Write-off of Accounts Receivable Note: Flowcharts in this section may not contain some aspects of the figures that they represent from the text. Space considerations required an abbreviated version on the slides. Please see the text for the complete diagrams.

18 A. Sales Returns A sales return occurs when a customer actually returns goods that have been shipped. Full credit is usually granted to the customer. CustomerReceivingCreditBilling Accounts Receivable General Ledger Sales Return Memo Sales Return Memo Approve sales return Returned goods Sales Return Memo Prepare and journalize credit memo upon receipt of approved sales return memo Credit Memo Credit Memo Post customer accounts Journal Voucher Journal Voucher Control Total

19 B. Sales Allowances  Allowances occur because of damaged merchandise, shortages in shipments, clerical errors, etc.  Amount of allowance is negotiated with customer.  Allowance is reviewed and approved by an independent party (usually the credit department).  Credit department forwards approved sales allowance memo to billing.  Billing prepares a credit memo for the allowance.  The handling the credit memo is the same as for credit memos for sales returns. (see prior slide)

20 C. Write-off of Accounts Receivable The central feature in a write-off process is an analysis of past due accounts. 3 Treasurer Credit Accounts Receivable General Ledger Internal Audit Aged Trial Balance Aged Trial Balance 2 1 Write-Off Memo File 1 Write-Off Memo 1 Write-Off Memo Post 3 Write-Off Memo Worthless Account List Worthless Account List Confirm Customer Write-off Notification Independent Approval Control Total Periodically confirm & post

21 IV. Lock-Box Collection Systems A lock-box system reduces float by having checks deposited to a firm’s account before the firm processes them. Savings of lost interest can be significant when interest rates are high. 1. Customer mails payment directly to seller’s bank. 2. Bank receives check and begins processing. 3. Seller receives customer names and payment details from the bank.

22 V. Cash Sales Unlike cash collections on account, cash sales have no prior record of occurrence. It is imperative that the sale be recorded so that any shortage of cash will be noticed. Customer audit is a general term used to describe procedures in which the customer acts as a control over the initial documentation of a transaction. Examples include:  Pricing items so that customers expect change.  Awarding prices for certain receipts.  No charge if a receipt is not offered.

23 Summary  Sales Order Processing  The Accounts Receivable System  Write-off of Accounts Receivable  Lock-Box Collection System  Customer Audit of Cash Sales

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