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 Sales Order Processing Cash Received on Account Other Account Receivable ProcessingLock-Box Collection SystemsCash Sales
3 I. Sales Order Processing Order EntryCredit ApprovalFinished GoodsShippingBillingAccounts ReceivableGeneral Ledger
4 A. Order EntryCustomer order is input into the order database to create an order.Master price list is consulted to determine management approved prices.Order database is updated with pricing information.Sales order is generated.Customer OrderEnter OrderCreate OrderOrderDatabaseMasterPriceListSales
5 B. Credit ApprovalNew sales orders are retrieved for sales on account.Credit department evaluates new customers using a credit check. Predetermined credit limits often provide general authorization for established customers.Credit authorization must be separated from sales order department to minimize sales to high risk customers.Sales order will not be approved until credit is approved.OrderDatabaseRetrieveNewOrdersSalesApproveCreditProcessingFilesApproved
6 C. Finished GoodsOrderDatabasePreparePickingListPickDeliveryProcessingInventoryPicking ListWith GoodsTo ShippingA picking list is prepared for approved sales orders in order to identify goods to be selected from finished goods.The order is picked using the picking list. Inventory records and the order database are updated.Picking list accompanies goods to shipping.Shipping should acknowledge receipt of goods transferred.
7 The order database is updated. From Finished GoodsPicking ListWith GoodsOrderDatabasePackingListMatchSales OrderDeliveryProcessingPacking ListBill of LadingTo CustomerD. ShippingShipping 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.The order database is updated.A bill of lading is prepared to document the agreement with the shipper (See Figure 7.5 on page 250)Copies of the packing list and bill of lading are usually included with the customer’s order when it is shipped.
8 E. BillingOrderDatabaseBillingListPrepareInvoiceProcessingTo CustomerPeriodicallyJournalEntryVoucherTo General LedgerBilling completes the order process by preparing invoices for orders on the billing list.Invoice is recorded in the sales journal, and notice is sent to accounts receivable to update individual customer accounts.Periodically, a journal voucher is prepared and forwarded to general ledger in order up update the control account for accounts receivable.
9 F. Accounts ReceivableOrderDatabasePreparePostingListInvoiceReviewPostAccountsReceivableLedgerControlTotalTo General LedgerStatementsTo CustomersA summary of invoiced orders in the order database is used to prepare an invoice posting list to update individual customer accounts for purchases.A summary of the total of the postings to individual customer accounts (control total) is sent to general ledger.Billing does not have access to the account receivable ledger.Accounts receivable also sends periodic customer statements.
10 From Accounts Receivable G. General LedgerControlTotalFrom Accounts ReceivableJournalVoucherFromBillingComparePostGeneralLedgerProcessingGeneral 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.The total is posted as a debit to accounts receivable (control account in the general ledger) and a credit to sales.
11 II. Cash Received on Account MailroomCash ReceiptsAccounts ReceivableGeneral LedgerInternal Audit and the Bank ReconciliationNote: Flowcharts in this section may not contain some aspects of thefigures that they represent from the text. Space considerationsrequired an abbreviated version on the slides. Please see the textfor the complete diagrams.
12 From CustomersRemittanceson AccountOpenMailRemittanceAdvicesChecks21ListPrepareForward toAccountsReceivableBRestrictlivelyEndorseand TotalControl TotalCashReceiptsAA. MailroomRecord keeping and custody of asset responsibilities are separated by having checks and remittance advices separated in the mailroom
13 AFrom MailroomChecksRemittanceListControl TotalFromCashSalesPrepareDepositSlipApproveReceiptsIntactCTo BankPost ReceiptsAnd PrepareJournalVoucherForward toGeneralLedgerDTo General LedgerB. Cash ReceiptsDeposit is completed and journal voucher is sent to general ledger (Debit - Accounts Receivable and Credit - Sales).
14 BFrom MailroomRemittanceAdvicesListPost toCustomerAccountsReceivableLedgerTotalPostingsControl TotalApproveForward toGeneralDC. Accounts ReceivableRemittance advices are used to update the accounts receivable subsidiary ledger. A control total is forwarded to General Ledger.
15 D. General LedgerControl TotalEFrom Accounts ReceivableDFrom Cash ReceiptsJournalVoucherCompareTotalsand PostGeneralLedgerGeneral 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.
16 E. Internal Audit and The Bank Reconciliation From Cash ReceiptsDepositSlipDepositedCashChecksValidateFileStatementReconcileInternal audit performs an independent reconciliation of the bank account.
17 III. Other Account Receivable Processing Sales ReturnsSales AllowancesWrite-off of Accounts ReceivableNote: Flowcharts in this section may not contain some aspects of thefigures that they represent from the text. Space considerationsrequired an abbreviated version on the slides. Please see the textfor the complete diagrams.
18 Post customer accounts A. Sales ReturnsA sales return occurs when a customer actually returns goods that have been shipped. Full credit is usually granted to the customer.CustomerReceivingCreditBillingAccounts ReceivableGeneral LedgerSales ReturnMemoApprove sales returnReturned goodsPrepare and journalize credit memo upon receipt of approved sales return memoPost customer accountsJournalVoucherControl Total
19 B. Sales AllowancesAllowances 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.3TreasurerCreditAccounts ReceivableGeneral LedgerInternal AuditAged TrialBalance21Write-OffMemoFilePostWorthlessAccountListConfirmCustomerWrite-offNotificationIndependent ApprovalControl TotalPeriodically confirm & post
21 IV. Lock-Box Collection Systems 1. Customer mails payment directly to seller’s bank.3. Seller receives customer names and payment details from the bank.2. Bank receives check and begins processing.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.
22 V. Cash SalesUnlike 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 ReceivableLock-Box Collection SystemCustomer Audit of Cash Sales