Chapter 11

The Billing/Accounts Receivable/Cash

Receipts (B/AR/CR) Process

Accounting Information Systems 7e

Ulric J. Gelinas and Richard Dull

Copyright © 2008 Thomson Southwestern, a part of The Thomson Corporation. Thomson, the Star logo, and
South-Western are trademarks used herein under license.

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 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.
 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

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 Horizontal View B/AR/CR
VP finance VP logistics 1. Shipping
department
Treasurer Controller
Customer informs the
Shipping department accounts
2c. Invoices
1. Shipping
notice receivable
2a. Invoice sent
B/AR/CR (Billing) department
5. Cash
applied (billing section)
4b. Payment of shipment.
3. Payment notice (RA)
General ledger

2b. Invoices
sent
B/AR/CR
(Cash applications)

4c. Cash
Cashier received

4a. Deposit

Bank

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 Horizontal View B/AR/CR
2a. Accounts
VP finance VP logistics
receivable
department
Treasurer Controller
Customer (billing) sends
Shipping department invoice to
2c. Invoices
1. Shipping
notice
customer.
sent
2a. Invoice
B/AR/CR (Billing)
2b. and c. Cash
5. Cash
applied applications
and general
4b. Payment
3. Payment notice (RA)
General ledger ledger
department
2b. Invoices
B/AR/CR
sent informed that an
(Cash applications) invoice has
Cashier
4c. Cash
received
been sent.
Accounts
4a. Deposit receivable and
Bank
sales accounts
are updated.
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 Horizontal View B/AR/CR
VP finance VP logistics 3. Customer
payment is
Customer
Treasurer Controller received.
Shipping department

1. Shipping
2c. Invoices notice
2a. Invoice sent
B/AR/CR (Billing)
5. Cash
applied

4b. Payment
3. Payment notice (RA)
General ledger

2b. Invoices
sent
B/AR/CR
(Cash applications)

4c. Cash
Cashier received

4a. Deposit

Bank

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 Horizontal View B/AR/CR
VP finance VP logistics 4a. Cashier
deposits
Customer
Treasurer Controller payments in
Shipping department bank.
1. Shipping
2c. Invoices
sent
notice 4b. System
2a. Invoice

5. Cash
B/AR/CR (Billing) informs
applied
accounts
3. Payment
4b. Payment
notice (RA)
receivable
General ledger
department
2b. Invoices
sent
(cash
B/AR/CR
(Cash applications) applications
Cashier
4c. Cash
received
section) of
payment.
4a. Deposit

Bank

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 Horizontal View B/AR/CR
VP finance VP logistics 4c. Cashier
informs
Customer
Treasurer Controller general ledger
Shipping department process of
2c. Invoices
1. Shipping
notice
payment.
2a. Invoice sent
B/AR/CR (Billing)
5. Cash
applied
5. AR informs
3. Payment
4b. Payment
notice (RA)
general ledger
General ledger
process of
B/AR/CR
2b. Invoices
sent
payment
(Cash applications)

4c. Cash
Cashier received

4a. Deposit

Bank

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B/AR/CR Context Diagram

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B/AR/CR
Level 0
DFD

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B/AR/CR Process Diagram 1
Perform Billing

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Sample SAP Invoice Data Screen

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B/AR/CR Process Diagram 2
Manage Customer Accounts

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B/AR/CR Process Diagram 3
Receive Payment

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 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

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 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.

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 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.
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 Sample Accounts Receivable
Aging Report
Current 1 - 30 31 - 60 61 - 90 > 90 TOTAL

Abercrombie, Kristy 3,111.28 3,111.28

Baker, Chris 1,040.00 1,040.00

Burch, Jason 1,005.00 1,005.00

Cook, Brian 7,112.63 700.00 7,812.63

Ecker Designs 7,694.41 7,694.41

Fisher, Jennifer 850.63 850.63

Jacobsen, Doug 2,245.00 75.00 2,320.00

Lew Plumbing - C 175.00 175.00

Melton, Johnny 4,999.50 4,999.50

Natiello, Ernesto (622.26) (622.26)

Prentice, Adelaide 431.95 431.95

Pretell Real Estate 27,611.86 2,239.00 29,850.86

Robson, Darci 12,420.98 12,420.98

Roche, Diarmuid 38.79 38.79

Smallson, Fran 1,665.00 1,665.00

Teschner, Anton 1,225.00 565.95 1,790.95

Violette, Mike 4,735.73 4,735.73

TOTAL 74,866.39 625.64 2,977.79 - 850.63 79,320.45

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

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 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.

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 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

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Billing
Function P-3

System
Flowchart

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Control
Matrix
for
Billing
Process

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 Cash
Receipts
System
Flowchart

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 Cash
Receipts
Control
Matrix

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 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

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 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.

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 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.
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 Other solutions to float
problems
• Electronic funds transfer
• Automated clearing house
• Lockbox and electronic lockbox services
• Electronic checks
• Electronic cash
• Electronic Bill Presentation and
Payment
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 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

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 Summary
• Billing/Accounts Receivable/Cash
Receipts is similar in most organizations
• Trigger to do billing
• How to handle exceptions
• Service organizations
– Higher education
– Plumbers
– Consulting
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