Accounts Receivable Administration

The sum of all customer account balances must agree with the accounts receivable control account in the general ledger. This total reflects the company’s investment in accounts receivable.

As a shipment is made, its invoice is posted to the customer account, either manually with a hand-posted system or as a byproduct of billing in an automated system. Credits and payments are also posted, so at any time the sum of the open items represents the balance due from the customer. From a credit perspective, accounts receivable administration reflects the credit parameters established for customers, along with a historical summary of the transactions that have taken place. Thus, it may involve customer identifiers, credit limits, credit agency ratings, daily shipping amounts, aging of open items, terms and a payment summary. Quantitative data for reports include number of invoices, checks, credits, discount or other terms violations, short payments and overpayments. The ledger should also contain a summary of order activity along with the impact on the balance due of any orders that have been approved or held but not yet shipped. This will provide an accurate view of the account as it looks when those orders are shipped and billed.

Provided by the anscers Encyclopedia of Credit.