L5. Accounts Receivable

Revenue to Receivable

edmundchung

L5. Accounts Receivable

WHY? Effective accounts receivable (AR) controls ensure that receivables are accurately recorded, monitored, and collected in a timely manner, thus maintaining cash flow and reducing the risk of uncollectible debts.

HOW?

1. AR Recording & Monitoring

• Detailed receivable records are reconciled regularly with the general ledger.

• An aged trial balance of receivables is prepared periodically to monitor overdue balances.

• Noncash credits to receivables (e.g., returns, discounts) are authorized by designated personnel and reviewed for accuracy.

• All adjustments to AR (e.g., write-offs, allowances) are approved by an individual outside the collection and billing process.

2. Reconciliation and Review

• Monthly reconciliations of AR with the general ledger ensure accuracy.

• Regular follow-up is conducted on outstanding receivables, including past due accounts, with documented actions taken.

• An independent review of aging schedules is performed to ensure accurate classification and to identify overdue accounts requiring attention.

3. AR Reporting & Review

• AR aging reports are reviewed regularly by management, with key accounts analysed for overdue balances and payment trends.

• Write-offs are reviewed and approved by a supervisor not involved in the AR function.

Q&A

• Q1: Why is it important to segregate duties in the accounts receivable function?

• Q2: How often should aged receivables reports be reviewed?

• Q3: What are the risks associated with not reconciling accounts receivable with the general ledger?

• Q4: How can we minimize the risk of uncollectible receivables?