Internal controls over accounts receivable ensure accurate revenue recording, proper billing, and timely cash collection, critical for liquidity (e.g., receivables follow cash and securities in the balance sheet). Key Steps:
Order Processing: Customer Order dept. prepares sales orders detailing goods and terms.
Credit Approval: Credit dept. assesses customer creditworthiness before shipment.
Shipping: Shipping dept. verifies goods match the order.
Billing: Billing dept. confirms shipment details and invoices customers.
Recording: Accounting dept. debits Accounts Receivable, credits Sales, and updates the subsidiary ledger (also adjusts inventory/COGS in perpetual systems).
Cash Collection: Checks are endorsed for deposit, listed daily, deposited by Cash Receipts dept., and recorded by Accounting (Cash debit, Accounts Receivable credit).
These controls ensure sales are earned, recorded correctly (amount, account, period), shipped accurately, and collected promptly, minimizing errors or fraud and supporting the operating cycle (cash to inventory to receivables back to cash).