Accounts Receivable Reconciliation Procedure.doc

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University of HoustonACCOUNTS RECEIVABLE GUIDELINES

Fisca !ear "#$%

E&ai Co&'ete( )ac*a+e To,

Gretta -cCainE&ai a((ress, +&ccain.u/0e(u

Accounts Receiva1e Reconciiation (ue to Accountin+ ServicesSe'te&1er $#2 "#$%

Accounts Receiva1e Gui(einesFisca !ear "#$%

mailto:[email protected]

mailto:[email protected]



Ta1e of Contents

Purpose and Overview 3

General Guidelines 4

Defnition o a Receivable 4

When is it Appropriate to Record an Accounts Receivable 4

Accounting Entries !o Record Receivables "

Accounting Entr# !o Record Pa#$ents Received %

Accounting Entr# !o Record &ash 'ales %

Accounting Entr# !o Record the Return o (erchandise )

Accounting Entr# !o Record Returned &hec*s +

Aging, &ollecting, and Reconciling Accounts Receivable -.

Writing O/ Accounts Receivable --

Accounting Entries !o Write O/ Accounts 0 !o Record Recover# -1

2orgiveness O Debt -3

'ub$itting Accounts Receivable Reconciliation 14

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)ur'ose an( Overvie3

!he goal o this procedure is to provide the policies and procedures related toaccounts receivables, and to i$prove the accounts receivable $anage$ent asoutlined b# the 'tate Auditors Oce5 6# understanding the policies and

procedures, and b# incorporating good business practices, universit# e$plo#eeswho $onitor and $aintain receivables will avoid undue dela#s and errors5

!his pac*et addresses7

What is a Receivable

8ow to record a Receivable

8ow to post Receivables, Pa#$ents, and Returns

!he Aging, &ollecting, and Reconciling o Receivables

8ow to Write O/ Accounts and Record Recoveries

8ow to or$all# sub$it the Write9O/ Re:uest

!his $aterial is a supple$ent to the universities or$al policies as detailed in the;8 (anual o Ad$inistrative Polic# and Procedure <(APP=, and in the ;8 '#ste$Ad$inistration (e$orandu$ <'A(=5

)ersonne 3or*in+ 3it/ Receiva1es s/ou( revie3 an( 1e fa&iiar 3it/,

T/e UH Syste& A(&inistration -e&oran(u& 4SA-5 #60A0"72 an(

T/e UH -anua of A(&inistrative )oicy an( )roce(ure 4-A))5

#%0#70#70

T/ese can 1e foun( on t/e UH /o&e 'a+e www5uh5edu>$app an( www5uh5edu>sa$.

3

http://www.uh.edu/mapp

http://www.uh.edu/sam

http://www.uh.edu/mapp

http://www.uh.edu/sam



Genera Gui(eines

!he institution is not allowed to deliver $erchandise or provide services toindividuals, associations or corporations in an# situation where the use o stateappropriated unds are involved, unless pa#$ent is received5 This prohibition doesnot apply to federal, state, county or municipal government agencies or tuitionand fees installment options.

Each college or division o the ;niversit# o 8ouston is responsible or establishingprocedures or e?tending credit, billing and collecting receivables, recording and$onitoring receivables, deter$ining allowances or doubtul accounts, and writingo/ uncollectible accounts5 The procedure shall ensure that any extension of credit is done so in a prudent manner, including the use of standardized credit applications, commercial credit reports, and specication of the level of authority required for approval of the credit request. !hese procedures $ust be docu$entedin writing and $ade available to Accounting 'ervices or @nternal Audit uponre:uest5

De8nition of a Receiva1e

Receivables are assets that represent clai$s against other entities or goods orservices provided, but or which cash has not been received5

Accounts Receivable is considered valid ater7

!he bu#er o the goods>services has entered into a legall# binding agree$ent !he receivable can be accuratel# $easured

!he seller has provided goods or services to the bu#er

!he pa#$ent is due to the seller ro$ the bu#er

!he pa#$ent has not been received ro$ the bu#er

!he revenue ro$ the transaction has been recorded on the sellers boo*s

!here is a reasonable e?pectation o collection

9/en is it A''ro'riate to Recor( a Receiva1e:

!he recording o a receivable b# a ;8 depart$ent $a# be appropriate i7

!he bu#er o the goods or service is not another ;8 depart$ent <ote7

&ertain e?ceptions $a# appl#= !he receivable is valid <see defnition o a receivable=

!otal outstanding receivables represent a signifcant percentage o a

depart$ents sales, <i5e5, accounts receivable are $aterial to the fnancialrecords o the depart$ent and thus to the universit#=

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!he transaction does not represent an e?tension o credit that is prohibited

b# law !he event is dee$ed to be appropriate b# the universit#s accounting ocer

Recor(in+ a Receiva1e ; Accountin+ Entries to )eo'eSoft

A Receivable is recorded using a Bournal entr# prepared b# the depart$ent andsub$itted to Accounting 'ervices via wor*Cow with the appropriate supportingdocu$entation5 !hese entries debit the appropriate receivable account, and creditthe appropriate revenue account in the depart$ents cost center in the generalledger5

Accounting Terminology:Debit: Increases a eceivable account !redit: Decreases a eceivable account

Example 1 - Low Volume Sales on Account (Single Revenue Account:

Descri'tion Cost Center Co&1ination <<De1it<<<<Cre(it<<

A>R 9 (a# 'ales <on acct= ..%3.9198.9A9-1-.. 1,"..5..(a# 'ales 0 'ervices ..%3.9198.9A943F..

1,"..5..

!he total o the debit<s= $ust e:ual the total o the credit<s=5 &redits $a# berecorded to $ore than one account <'ee E?a$ple 1=5

@ the sale is subBect to state and local ta?, the ta? liabilit# $ust be recorded at theti$e the revenue is recognied5 !he sales ta? account is credited or theappropriate a$ount as calculated ro$ the ta?able sale <in this case )51" percent=5

Example ! - Low Volume Sales on Account ("ultiple Revenue Accounts:


A>R 9 (a# 'ales <on acct= ..%3.9198.9A9-1-..1,"..5..(a# on9!a?able 'ales ..%3.9198.9A943F.. -,...5..(a# !a?able 'ales ..%3.9198.9A943F.F -,3)"5F)'ales !a? Pa#able ..%3.9198.991.F.4 --4531

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6oth o the above e?a$ples show the recording o receivables as a balance or aspecifc periodHthe total sales on account or a $onth5 !his $ethod is appropriateor a depart$ent with li$ited sales on account, with each sale o relativel# lowvalue5 Entries are prepared b# the depart$ent on the last business da# o the$onth and orwarded to Accounting 'ervices beore the deadline or recording that$onths business5 Entries should be prepared $ore re:uentl# b# depart$ents

with a signifcant a$ount o their business on account5An alternative, and the preerred $ethod or depart$ents with a high value salesvolu$e, is to record each sale as an individual receivable5

Example # - $ig% Value Sales on Account:


A>R 9 I5 '$ith J3.-1 ..%3.9198.9A9-1-.. )--5))A>R 9 &5 ash J3.-" ..%3.9198.9A9-1-.. 1,.F%5")(a# !a?able 'ales <3.-1, 3.-"= ..%3.9198.9A943F.F

1,FF.5..'ales !a? Pa#able ..%3.9198.9A91.F.4 1-+54F

All Bournal entries $ust be supported b# copies o the detailed sales records andinvoices or the sales on account5

!he depart$ent business $anager should review the business records to ensure

that the total o the detailed sales records e:ual the Kcash sales <currenc#, chec*,credit card= plus the Ksales on account5

@n this e?a$ple separate lines e?ist <debits= or the receivables due ro$ I5 '$ithand ro$ &5 ash5 !his $ethod produces separate detail lines in the A>R accountor the depart$ental cost center in the P' general ledger5 When a transactionreport prints <ro$ P'= each line displa#s5 !his $ethod $a*es the reconciliation o the Receivable $uch easier5

6ecause revenue recognition does not result ro$ the collection o cash onaccount, the entries to record sales on account should never be conused with,

or included with, the entries to record cash Kreceived on account <'EE E?a$ple 4=5

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Recor(in+ )ay&ents Receive( ; Accountin+ Entry to )eo'eSoft

Example & ' Receipt o )ayment on Account (L. Smit%:

Descri'tion Cost Center Co&1ination <<De1it<< <<Cre(it<<

&ash Deposit ..%3.96AL )--5))A>R 9 I5 '$ith J3.-1 ..%3.9198.9A9-1-.. )--5))

@n this e?a$ple, I5 '$ith sent a chec* in the a$ount o )--5)) or pa#$ent o thereceivable recorded above <'EE E?a$ple 3=5 A credit Kto the receivable or theentire a$ount o the pa#$ent Kreduces the account balance to ero5 ote thatcredit entries to K'ales !a? Pa#able <1.F.4= and to the KRevenue <43F.F= werepreviousl# recorded <'EE E?a$ple 3=5 As a result, this entr# does not duplicate thePa#able or the Revenue5

&ash received as pa#$ent on an account7 @s included in the depart$ents dail# cash receipts

(ust credit the receivable

(ust O! be reported as a new sales revenue

Recor(in+ Cas/ Saes ; Accountin+ Entry to )eo'eSoft

Example * ' To Recor+ ,as% Sales:NOTE When cash is received at the ti$e o sale, no Receivable Account will

e?ist5 @nstead, the debit is to the 6AL account5


&ash Deposit ..%3.96AL ".-5""onta?able sales ..%3.9198.9A943F.. 3".5.. !a?able sales ..%3.9198.9A943F.F -4.5..'ales !a? Pa#able ..%3.9198.9A91.F.4 --5""

!he above entr# records both !a?able and on !a?able sales5 !he a$ount o the

'ales !a? entr# is derived b# $ultipl#ing the a$ount o the !a?able 'ales b# thecurrent ta? rate <M )51"N in this case=5

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Recor(in+ t/e Return of -erc/an(ise ; Accountin+ Entry to)eo'eSoft

@n the event that $erchandise sold on account is returned, the a$ount o the

receivable is reduced <credit= b# the a$ount o the return5 !he revenue and salesta? are debited or the appropriate a$ounts5 !he entries or the KReturn o a 'aleare show below, using the &5 ash sale <@nvoice J3.-"= as an e?a$ple5

Example - Return o "erc%an+ise )urc%ase+ on Account:


!a?able 'ales <ash Return= ..%3.9198.9A943F.F -,+-.5..'ales !a? Pa#able ..%3.9198.9A91.F.4 -"%5")

A>R 9 &5 ash J3.-" ..%3.9198.9A9-1-.. 1,.F%5")

As with all accounts receivable entries7 !he debits and credits $ust balance5

'ales>Return Docu$entation $ust support the transactions5

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Recor(in+ Returne( C/ec*s ; Accountin+ Entry to )eo'eSoft

Pa#$ents received b# chec* that are returned to the ;niversit# as unpaid<insucient unds, cancellations, etc5= are recorded b# 'tudent 2inancial 'ervices<'2'=5

!he entr# recorded is a debit to account -1-.-, A>R Returned &hec*s, and thedesignated cost center provided b# the &ollege>Division to '2' and a credit to the6AL account5

Example - Returne+ ,%ec/s:

Descri'tion Cost Center Co&1ination <<De1it <<Cre(it<<

Returned &hec* ..%3.9198.9A9-1-.- -..5..Returned &hec* ..%3.96AL -..5..

@ pa#$ent is received or the returned chec*, the ollowing entr# should be $ade7

Example 0 -- )ayment or Returne+ ,%ec/s:

Descri'tion Cost Center Co&1ination <<De1it <<Cre(it<<

Pa#$ent Returned &hec* ..%3.96AL -..5..Returned &hec* ..%3.9198.9A9-1-.- -..5..

Detailed inor$ation or returned chec*s recorded to #our depart$ents costcenter can be obtained b# running the -.%4 Report 'ection 3, !ransaction Detailor Asset>Iiabilit# >2und E:uit#, or #our &ollege>Division5

Review the transaction detail or account -1-.- to obtain a list o Bournalsrecording transactions to account -1-.-5

Ater obtaining the list o Bournals, review the Bournals in People'ot5 !he bac*up

attached to the Bournals will have the inor$ation regarding the returned chec*s5"eturned chec# $ournals %ill record transactions for more than one!ollege&Division you %ill have to identify the information specic to your!ollege&Division.'

!he inor$ation obtained ro$ the Bournal bac*up should be used to co$plete theReturned &hec*s Wor*sheet5

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A+in+2 Coectin+ an( Reconciin+ Accounts Receiva1e

All depart$ents recording accounts receivable $ust $aintain ade:uate records o their accounts5 Each transaction is individuall# reviewed this is i$portant oraging, collection and write9o/, i necessar#5

Depart$ents will reconcile their outstanding receivables to the institutionsfnancial s#ste$ $onthl#5 (onthl# reconciliations will be $aintained and $ust be$ade available to Accounting 'ervices and>or @nternal Auditing upon re:uest5

Depart$ents $ust also $aintain an aging schedule or all accounts receivable5 !he total o the aging schedule should be e:ual to the total accounts receivablerecorded5 'tandard aging brac*ets used are7

.93. da#s,3-9F. da#s,

F-9+. da#s,+-9-1. da#s,-1-9-). da#s,-)-93F. da#s,3F-9%1. da#s, andOver %1. da#s5

!he depart$ent recording the receivable has the sole responsibilit# or collectingthe account5 !he depart$ent $ust have a docu$ented collection procedure inplace and on fle in Accounting 'ervices5 A reco$$ended schedule o activities orthis procedure includes7

.93. da#s (ail original invoice3-9F. da#s (ail second cop# o invoice with sta$ped notice PA'! D;EQF-9+. da#s (ail standard collection letter de$anding pa#$ent+-9-1. da#s Place telephone call to debtor-1-9-). da#s (ail Kcertifed letter with Kreturn receipt each $onth

Place telephone call each $onth-)- da#s (ail letter each $onth with cop# to ;8 General &ounsel

All collection activity must e logge+2 an+ copies o all correspon+ence tot%e +etor retaine+.

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9ritin+=O> Accounts Receiva1e

Accounts dee$ed as not collectible $ust be written o/5 Accounts receivable areeligible or write9o/ when the# re$ain outstanding or %1. da#s <1 #ears=5Outstanding accounts, originating during or beore fscal #ear 1.-3, are eligible or

write9o/ in this fscal #ear5

6eore a receivable is written9o/, the depart$ent $ust de$onstrate that ade:uatesteps were ta*en to collect the receivable5 Depart$ents writing o/ an# account<s=$ust prepare a pac*age and send it to Accounting 'ervices5

!he pac*age will include7

-5 A cover $e$o signed b# the business $anager, stating the total a$ount o the re:uested write9o/5

15 &ost &enter, account and a$ount or Accounting 'ervices to prepare a

Sournal Entr# to boo* the write9o/ when 6OR approval is received535 A current reconciliation o the depart$ents outstanding Accounts

Receivable545 A current Aging 'chedule supporting the accounts to be written o/5"5 A list o the individual accounts or write o/ consideration5F5 Each individual account to be written9o/ $ust be supported b#7

A cop# o the original invoice,

A cop# o the &ollection Activit# Iog, and

All correspondence relating to the collection activities or that

account5

@ account to be written o/ are chec*s, additional inor$ation re:uired is7 a$e o &hec* Writer

&hec* u$ber

&hec* Date

&hec* A$ount

&hec* Purpose

People'ot @D, i chec* was written b# a student or e$plo#ee

!he 6oard o Regents o the ;niversit# o 8ouston '#ste$ approves all a$ountswritten o/5 A list o the accounts slated to be written o/ is prepared b# Accounting

'ervices and sub$itted to the 6oard once each fscal #ear5

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Accountin+ Entries to )eo'eSoft Financias to 9rite O> Accounts to Recor( t/e Recovery of an Account )reviousy

9ritten O>

A?R 9rite O> Entry, 4Note, 9rite o> @ournas are 're'are( 1y Accountin+

Services5

Example 3 - A4R 5rite 67 Entry: !he ollowing entr# will reduce the Accounts Receivable and the 2und E:uit#5 !hea$ount is e:ual to the total o all accounts written o/5


2und E:uit# Deduction ..%3.9198.9A93F-.. A>R ..%3.9198.9A9-1-..

2und e:uit# is used because the sales revenue associated with the write9o/ wasrecorded in a prior fscal #ear5

Recovery Entry ; For )ay&ent Receive( on Account )reviousy 9rittenO>, 4Note, Recovery @ournas s/ou( 1e (iscusse( 3it/ Accountin+Services 'rior to 're'aration5

Example 18 - A4R Recovery:@ a vendor sub$its pa#$ent on an account previousl# written o/ the boo*s, thenan entr# $ust be written to record that transaction5

!he entr# should be written and sub$itted to Accounting 'ervices during the$onth the recover# is $ade5


&ash Deposit ..%3.96AL 2und E:uit# @ncrease ..%3.9198.9A931-..

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For+iveness of De1t

!he write9o/ o an account is a boo**eeping entr# onl# and does not relieve thedebtor ro$ fnancial responsibilit# to the universit#5 Although the account hasbeen re$oved ro$ the boo*s, the universit# $a# still have a clai$ against the

debtor and $a# still see* legal re$ed#5 !hereore, it is the responsibilit# o eachdepart$ent to $aintain ade:uate records regarding legal debts owed to theuniversit#5 Depart$ents who wish to orgive a debtorTs obligation to the universit#shall see* advice ro$ ;8 &ounsel and the Director o !a? &o$pliance in the oceo the Assistant Uice President or 2inance regarding an# special ta? conse:uencesrelating to the orgiveness o debt5

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Su1&ittin+ t/e Accounts Receiva1e Reconciiation

Accounting 'ervices preer the Accounts Receivable Reconciliation be sub$itted

electronicall#5

!he depart$ent should retain copies o all $aterials and wor*sheets used tocalculate the values5

E&ai co&'ete( eectronic 4'reference5 reconciiation to,Gretta (c&lain

E$ail address7 g$cclainMuh5edu

If su1&ittin+ Accounts Reconciiation 1y 'a'er2 sen( to,Accounting 'ervices

;8 Energ# Research Par*6uilding -, Roo$ 1-3

Due, Se'te&1er $#2 "#$%

Inco&'ete 'ac*a+es 3i 1e returne( to t/e Business A(&inistrator0

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