CHAPTER 7: ACCOUNTING, RECORDS, AND ASSOCIATED REGULATIONS
Asset and income account balances: The AR balance (asset account) should always have a debit balance on the trial balance and the balance sheet. This represents the total outstanding invoices that are owed to the company by customers and which have not yet been paid. If accounts receivable has a credit balance, it means that customers have overpaid invoices and that monies are then owed to the customer (which would be a payable). Income accounts should always have a credit balance, money due to the company. If the account shows a debit balance, it means that it is technically an expense. Journal: This is a chronological listing of a company’s transactions. Because the journal is where the information from the source document first enters the accounting system, it is known as the “Book of Original Entry.” In AR, the journal is referred to as the Billing Register. Fiscal control and internal control: One of the missions of the billing department is to issue timely and accurate invoices to the company’s customers, then for AR to collect outstanding balances quickly and immediately apply incoming cash receipts. This is largely achieved by implementing adequate processes and internal controls to assure that cash is collected in an accurate, secure, and timely manner. Recognition of revenue: The income statement shows revenues recognized for a specific period and the costs and expenses charged against these revenues. Matching revenues with expenses is an important regimen in accounting, with the particular standards set in accounting standards (GAAP, IFRS, etc.—see definitions below). An example under GAAP would be the sale of an annual subscription product that is delivered monthly. Imagine that the product costs $120 annually, and is paid for up front. In an accrual accounting scenario, only $10 per month would be accrued for revenue. So, for the first month, $10 would be credited to the revenue account and $110 would be recorded as deferred income (or a payable on the financial records). And that revenue would be matched against the monthly expense to deliver that product. Each month, an additional $10 would be transferred from the deferred income account into the appropriate revenue account until, at the end of the year, the deferred revenue account would be zeroed out and the entire $120 in revenue would be recognized.
7.3 Financial Reporting and Account Standards
A set of accounting standards—developed by independent, not-for-profit organizations that set standards and procedures—is critical for the AR process. Such standards regulate the data in financial statements that allow financial comparisons. This provides the credit manager with the ability to analyze and compare the financial report to set credit lines fairly. Globally, the International Accounting Standards Board (IASB) is a private organization within the IFRS Foundation that develops and publishes International Financial Reporting Standards (IFRS). Its purpose is to ensure transparency in corporate reporting through understandable and enforceable financial reporting standards on a global scale.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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