Accounting Information Systems: The Processes and Controls, 2nd Edition

CASH COLLECTION PROCESSES (STUDY OBJECTIVE 4)

Company-to-company sales are typically made on account, and a time span is given for the customer to pay. An example of the credit terms of sale would be net 30. This means the customer has 30 days after the invoice date to pay. Therefore, the timing of a cash collection is such that there will be some number of days between invoice date and collection of the cash. The actual number of days depends on the credit terms of the sale and the diligence of the customer in paying on time. When the customer sends a check, the company must have processes in place to properly handle the receipt. The appropriate employees should match the check with the related sales invoice, deposit the funds in a timely manner, and update customer and cash records. Exhibit 8-12 is a process map of a cash collection process. Exhibit 8-13 shows a document flowchart of cash collection processes, and Exhibit 8-14 shows the cash collection processes in a data flow diagram (DFD).

Collections from customers typically include a remittance advice, which is the documentation accompanying payment that identifies the customer account number and invoice to which the payment applies. An example of a remittance advice in your personal life is on your credit card statement. Part of your statement is meant to be detached and mailed with your payment. This remittance that you return enables the company to properly apply your payment to your account. In the case of company-to-company ...