Receivables (AR102)

Process Group/Policy Details

• Subject:  Accounts Receivable

• Process Group: Receivables

• Title of Policy: AR_Receivables

• Effective Date: 07/01/2014

• Approved/Revision Date: 07/01/2014

• Approved by: State Controller

Process Group Description

Receivables

• A receivable is an accounting event that triggers the billing for goods supplied or services provided. Receivables can be modified through write off, release, or compromise. In addition, Central Collections may send a receivable to a collection agency. The receivables process group includes information necessary for the proper recording of receivable transactions and subsequent modifications to receivable transactions, when necessary. The procedures within the receivables process group will address both receivables directly entered into CORE and those receivables that are interfaced into CORE on a summary level.

• In all funds, accounts receivable should be recorded when the related revenue is earned, but not yet collected. In a governmental fund, in order to record a receivable, it must also be susceptible to accrual, meaning both measurable and available. Measurable means that a reasonable estimate of the amount due can be made. Available means the receivable will be collected in time to be used to fund expenditures within the next fiscal year.

• Generally Accepted Accounting Principles (GAAP) specify that governmental funds usually record miscellaneous fees and fines on the cash basis. However, departments may use their professional judgment to determine if these items are measurable and available, and therefore, should be recorded as revenue and receivables before receipt of the cash.

• If there is uncertainty regarding the validity of the receivable, a department shall evaluate if a receivable should be recorded for financial reporting purposes. A department shall not record receivables with an equal amount as a credit to the allowance account.

Rationale or background to policy:

• CORE provides a variety of functionality related to the types of receivable transactions that may be processed. In order to ensure that the functionality is properly and consistently applied, policy is required.

Policy Statement:

AR.PO.02 AR_Receivables

• The accounts receivable process starts with the recording of RE transactions. The receivable information recorded in CORE will be through both manual entry and through interfaced transactions. Departments will use the appropriate receivable transaction depending on the activity being recorded. Departments will use RE transactions for manually entered receivable information, RE1 transactions for interfaced receivable information, and RE2 transactions to record employee receivables. Certain CORE fields are required depending on the nature of the receivable activity being processed.

Procedures:

AR.PR.02.1 AR_Process Receivable

• Regular and summary receivables are processed through an RE transaction. Regular receivable is the default receivable type, which typically results in the generation of an invoice or statement to bill customers depending on the BPRO set-up. A regular receivable is eligible for the accrual of finance charges and other collection actions. Summary receivables do not generate billing and are not eligible for finance charge accrual, automatic netting, or collections because summary receivables record aggregate information being entered into CORE based on receivable information included in a system outside of CORE.

• When processing an RE transaction, a department shall consider the following:

  • • The header section stores information that applies to all components of the RE transaction. Within the header section, there is an extended description field. The invoice form has been created to pull information from this extended description field. This was done to allow departments the option of including specific and extended information on customer invoices if needed. This field contains up to 1,500 characters. (For more information on invoices, see AR.PR.04.1)

    • The vendor section contains information about the customer and billing. A department may use either a specific customer code for a customer that is included in the VCUST table, or a miscellaneous customer code that is set up for the department depending on the nature of the receivable being recorded.

    • When a department records regular receivables, a department has the option to include invoice instructions within the vendor section; however, the billing instructions from the BPRO code will default on the RE transaction. A department has the ability to add, change, or remove the invoice instructions that defaulted in the RE based on the BPRO setup. A department does not have the option of changing the statement instructions on the RE transaction as these can only be specified in the configuration of the BPRO. For more information on BPRO configuration, see AR.PR.01.1)

    • The accounting section is the main data entry point for accounting line and detail information related to the receivable.

AR.PR.02.2 AR_Summary Receivable

• The RE1 is specifically used to record accounts receivable information maintained in systems external to CORE that is being electronically interfaced into CORE. No billing is generated and an RE1 receivable is not eligible for finance charge accrual or automatic netting or collections.

• The major difference in processing an RE1 from a regular RE is that miscellaneous customer accounts are always used on summary receivables and the miscellaneous customers do not require a billing profile, as there will be no billing performed in CORE related to interfaced summary receivables.

AR.PR.02.3 AR_Process Accrued Receivable

• The purpose of the ARE transaction is to record revenue that is not billable. This transaction should be used when a department does not intend to bill the customer, but rather to record the revenue on a timely basis. Only departments directly using the A/R module in CORE will process an ARE transaction. Departments using an external billing system that interfaces with CORE will not utilize the ARE (For more information on interfaced receivable transactions, see AR.PR.02.2 above).

• The ARE transaction is optional and is normally only associated with revenue and not other receivables such as vendor refunds, deposits, and balance sheet billings. When a customer has been provided goods or services that meet the accounting requirements for earned revenue, yet cannot be billed at the present time, this is the appropriate transaction to use to record the receivable and revenue. The ARE transaction should be recorded until such time that the customer can be billed or collection is made without a bill.

AR.PR.02.4 AR_Process Employee Receivable

• When a department overpays an employee, that department shall create a receivable. Employee overpayments may be the result of a payroll overpayment or a reimbursement overpayment. The RE2 transaction has been configured in CORE specifically to process cases of employee overpayments.

• Employees will need to be setup on the VCUST table if they have not been previously paid in CORE. If already setup on the VCUST table, the employee’s record may need to be updated in order to treat an employee as a customer, the employee must be flagged as both a vendor and customer within the VCUST table. To change the status of an employee record within the VCUST table, refer to VCUST.PR.03.01. Additionally, the statewide generic billing profile 00004 should be used. This billing profile is configured for “no billing” and therefore will not generate invoices and statements related to the receivable. For more information on billing profiles, see AR.PR.01.1.

AR.PR.02.5 AR_Process Receivable Modification

• There may be instances in which a department needs to modify the original receivable based on changes in circumstances surrounding that receivable. The following list includes common types of receivables modifications that may be necessary. It is important to note that all modifications to an RE transaction require an adjustment reason code. (For more information related to adjustment reasons, see AR.PR.02.6 below.)

• Receivable under protest: In instances in which a customer is protesting a receivable, the department has the option of suppressing billing and any applicable finance charges until the protest has been resolved. In the vendor section of the transaction, under the billing/collection information tab, there are check boxes to “suppress invoice billing” and to “suppress auto finance charge”. There is also a check box to indicate that the receivable is subject to “legal action”. A department should check the appropriate boxes on the transaction. The adjustment reason DISPUTE should be selected for a receivable under protest.

• Receivable protest resolved: In instances where an RE was flagged as protested, once the protested receivable has been resolved, a department shall continue with the processing of the RE transaction. When the protest has been resolved, the department will complete the reverse of the steps in receivable under protest above. The adjustment reason SETTLED should be selected for a receivable protest that has been resolved.

• Reclassify unearned revenue as earned revenue: All or part of a receivable amount may be reclassified from unearned revenue to earned revenue. This is done by decreasing or reducing the amount on the unearned revenue line in the accounting section of the RE modification transaction and then adding a new accounting line for the same amount, to reclassify the revenue as earned. The adjustment reason of RECLASS should be selected for this type of modification.

• Increase or decrease a receivable amount: If the dollar amount recorded on the original RE transaction needs to be adjusted, the line amount in the RE transaction will be either increased or decreased (depending on the nature of the adjustment). The adjustment reason may vary depending on the reason for the change in dollar amount.

• Enter Interest and/or Fees: Interest and fees can be recorded automatically by the system, or manually. When fees are recorded automatically by the system, CORE will identify overdue receivables subject to the application of finance charges, calculate the fees, and modify the RE transactions based on BPRO configuration (see more information on BPRO configuration at AR.PR.01.1). The types of fees that can be posted manually include interest, late fees, administrative fees, non-sufficient fund fees, and “other”. To add fees at the accounting line level, modifications will be made in the Accounting section of the RE modification transaction (depending on the nature of the adjustment). Ensure that any fees being charged are directed into the correct revenue source code and select the appropriate adjustment reason, which may vary depending on the interest and/or fees being applied.

• Change accounting distribution: One or more Chart of accounts elements may need to be adjusted on the receivable transaction. Please note however that the accounting distribution cannot be changed if the receivable line in the transaction is either fully or partially closed. To adjust the chart of account elements, modifications will be made in the Accounting section of the RE modification transaction and the adjustment may vary depending on the reason for the change in coding.

AR.PR.02.6 AR_Cancel a Receivable

• An RE transaction may be cancelled either in draft form, (if the receivable should not be established) or after the receivable has been established (if the receivable was recorded in error).

• To cancel an RE transaction when it is in draft form, the creator of the transaction needs to discard the draft transaction by clicking on the discard button. The system will bring up a dialog box asking if the transaction should be discarded. If the yes button is selected, then the draft transaction will be discarded.

• If the RE transaction has already been processed and is in final status, the department shall locate the RE to be cancelled, and then click on the discard button. Again, a dialog box will appear to confirm if the transaction should be discarded. If the yes button is selected, a new version of the RE will be created by the system. The function of the document is cancellation and the document will be in draft form until it is validated and submitted.

AR.PR.02.7 AR_Adjustment Reason Table

• The ADJR table allows users to define specific reasons why an accounts receivable transaction was modified. If a specific adjustment reason does not meet the needs of a department, there is an “other” reason. If a department determines that it is necessary to use the “other” reason, then a description of the reason for the adjustment must be included in the extended description field within the accounting section of the document. On RE transactions, departments must use the extended description field within the accounting section and not within the header section. The extended description field within the header section is mapped to and included on the invoice if the associated customer is set up for billing.