Accounts Receivable

Accounts receivable represent debts owed to the University for goods and services the University has provided to its customers. These short-term debts are normally expected to be repaid in 30 days with no interest charge.

The responsibility for collecting accounts receivable is usually left to the department that provided the goods or services. This section details the department head’s responsibilities for the accounts receivable function.

Key Terms

An aging is a method of analyzing the collectability of outstanding accounts receivable. An aging is performed by categorizing individual customer account balances according to their age (normally the time since the last payment was received).

A write-off of accounts receivable reduces the customer account balance to zero. Accounts that are determined to be uncollectible may be written off the University’s accounting records.

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Safeguards for Accounts Receivable

• Where possible, separate the duties of the accounts receivable specialist from the cashier (the employee who receives and records payments).
• Document the department’s routine collection procedures in writing.
• Retain documentation of all collection efforts, including copies of invoices, correspondence with customers, notes of phone calls, memos to legal counsel, and correspondence with collection agencies.
• Discontinue services for delinquent customers and place holds on the release of student grades and records and on registration privileges when allowable.
• Use prenumbered invoices and account for all invoices.
• Require an employee who does not handle cash receipts to approve payment of credit balances and credit adjustments to the account balance.
• Direct customers who dispute their account balances to someone other than an employee who receives payments.
• Periodically reconcile the total of customer accounts receivable to the control balance (see Customer and Control Accounts below).
• Age customer accounts receivable balances and review past-due accounts at least quarterly.

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Customer and Control Accounts

When a customer receives goods or services on credit, the amount of the sale should be added (a debit entry) to the customer’s account, thus increasing the balance. When the department receives a payment from the customer, the amount of the payment should be subtracted (a credit entry) from the account, thus decreasing the balance. At any point, the difference between the credit sales and payments recorded will be the customer account balance. Generally, a positive balance represents the total accounts receivable the customer owes to the University.

Customers’ payments and credit sales are maintained in a single summary account called a control account. As with customer accounts, credit sales increase the balance of the control account, and payments from customers decrease the balance. (These entries usually are made in summary form.) The difference between the charges and payments is the control balance (sometimes called the control total). If correct, the control balance should equal the sum of all customer account balances. A difference would indicate an error in either the control balance or one or more customer account balances.

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Your Role in Managing Accounts Receivable

Your primary responsibility is to ensure that your department has procedures in place to accomplish the activities listed below. These activities may be delegated to a staff member.

1. Maintain an account for each credit customer to record the charges and payments made by the customer (customer or subsidiary account).
2. Maintain a single summary account to record all customers’ payments and credit sales (control account) and to reconcile to the customer accounts total. The purpose of the control account is to provide the following: 

• • Assurance that payments and charges were recorded accurately in the individual customer accounts.
  • A current total of all outstanding accounts receivable owed to the department.

3. At least quarterly, perform an aging of accounts receivable to determine the collectability of outstanding accounts.
4. Make a diligent effort to collect outstanding accounts receivable. (See Policy FI0305 for collection effort requirements.)
5. Each month reconcile returned checks and dishonored credit card transactions on hand to the amount shown in IRIS.
6. Initiate requests to write off all uncollectible accounts. Accounts should be written off to properly reflect accounts receivable in IRIS and to avoid unnecessary collection expenses. Requests should be submitted on an Accounts Receivable Write-Off Request, Form T-35 (see Appendix). (Procedures for writing off accounts are detailed in Policy FI0305.)
7. Each June 30 establish an allowance for doubtful accounts to reflect the estimated uncollectible accounts. This allowance is used to reduce the total amount of accounts receivable on the University’s financial statements.
8. Report a list of accounts receivable and an aging of accounts receivable to the appropriate office at the end of each fiscal year to ensure that accounts receivable are recorded accurately and fairly in IRIS. Departments will be notified annually where to send the necessary information. (If not notified, contact Audit and Compliance.)

Detailed policies and procedures for managing accounts receivable are in Policy FI0305.

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