Businesses that sell goods and services on credit generally use a subsidiary report called accounts receivable (AR) to manage customer accounts. In this chapter we describe how receivables are managed in NewViews.
A subsidiary report with a simple structure can be used in NewViews to manage customer receivable accounts. This report contains one account for each customer and it totals to an AR controlling account on the trial balance or balance sheet. Customers can be ordered in any way on the report and they can be rearranged at any time using /Block Move when sorted by line number. Customers can also be grouped and sub-totaled by any category.
Ledger views of customer accounts display the customer's transactions along with opening, closing and running balances. Therefore a ledger has the basic form and content of a customer statement. Typically, transactions consist of invoices, payments, credit memos and service (finance) charges. As you browse through a customer's account (statement), you can restore, if necessary, the top pane of the Ledger Explorer to see invoices and other transactions for more detail.
Different ledger views provide useful alternatives for viewing a customer account. The account ledger view displays all of the customer's transactions whether open, closed, debit or credit. The debit view displays only invoices and service charges. The credit view displays only payments and credit memos. The open view displays all open items and is suitable for an open item customer statement. The closed view displays all closed items, forming a detailed record of past transactions. The history view provides a historic summary of the customer's account. In addition, the address view is used to record contacts, phone numbers, addresses, shipping information. The notes view is used to record miscellaneous comments and instructions.
Invoices are added to a sales invoice journal. Debiting a customer account and crediting appropriate accounts for sales, shipping, sales taxes, and so on. If you have only one sales account then all sales items on the invoice post to that account. If you resolve sales by product or by any other categories, then the item for each product sold posts to the sales account for the appropriate category. As an alternative to adding invoices directly to the invoice journal, you can add them to a customer accounts as distributions.
If you provide your customers with invoices over the counter at the point of sale, then you can fill in pre-printed invoices and hand them to the customer. The invoices are recorded later in NewViews. On the other hand, you can use NewViews to print invoices. The decision depends mainly on the timing of orders and deliveries and on the circumstances of sales. If orders are taken by email or phone, you can record the order in detail and then print the invoice at the time of shipment or invoicing. The ability to add transactions dated in the future is useful for planning and order management.
When perpetual inventory is employed NewViews will add an additional transaction to cost the goods sold. The amount of the transaction equals the cost of the goods sold according to the costing method used. The transaction is added to cost of goods sold, posting to appropriate inventory accounts.
Payments are added to a bank deposits journal, crediting the customer AR accounts. For open item accounts these payments must be applied to invoices as described later in this chapter. Returns and allowances are recorded on customer accounts, posting to a sales returns and allowances account. If cash discounts are allowed it is not usually known at the time of sale whether a discount will be taken. When discounts are taken, payments received are added as distributions to a bank deposit journal. One item posts to the customer AR account for the gross invoice amount and the other posts to a cash discounts account (contra-sales) for the amount of the discount taken.
In the balance forward method payments received from customers are added to a bank deposit journal, crediting the appropriate customer accounts. Account ledgers are used to produce customer statements on a regular basis. Each statement presents an opening balance (the balance forward from the last statement), a list of all transactions that have occurred since the last statement was issued, and the closing balance of the statement. The closing balance of one statement is carried forward as the opening balance of the next. Each transaction should appear on exactly one customer statement.
Use the print statements command and set the appropriate date. An opening balance amount will appear on the statement.
You can maintain any account using the open item method. As in the balance forward method, payments received are added to a bank deposit journal, crediting the appropriate customer accounts. However, unlike balance forward, invoices and other charges are paid on an item-by-item basis. Unpaid items are open and paid items are closed. Payments are systematically applied to invoices by closing the payment and each item to which it applies. The open view is convenient for applying payments because items that are closed move to the closed view and only items requiring further operator attention remain. As a result, the open view is always suitable for the production of open item customer statements. Paid invoices and applied payments are kept on-line on the closed view.
You can apply payments to invoices at any time, but they should be applied in a systematic manner. For example, you can apply payments immediately on receipt or they can be applied just prior to production of customer statements. In the latter case you can use the accounts receivable report to quickly identify active customers and accounts that have unapplied payments. Note that the production of customer statements and invoices, the application of payments to open items and the purging of accounts can be automated to any degree through the use of procedures.
When the open item method is employed, you can use the custom analysis view for an aged accounts receivable report or the Invoice Aging window of the AR Account Type. Aging has no meaning for the balance forward method. The sums of open items are displayed for up to six periods and these periods can be of varying length. The aging report is useful for identifying problems at a glance. Tardy accounts can be expanded immediately for more detail and the address view can be used to record the customer's phone number, address, contacts, etc. The notes view can be used to record telephone conversations, commitments, etc.
Although an account is usually kept for each customer, some customers are temporary in nature and do not warrant a separate account. You can instead use a single account to manage all miscellaneous customers. Invoices for many customers are contained on this account so it must be managed using the open item method. Since transactions for various customers have been intermixed you cannot use the account to produce customer statements. Customers are billed by invoicing them and payments are applied to a customer's outstanding invoices on an individual basis. The description of each transaction should clearly identify the customer.
You can use a single account for all accounts receivable if your requirements are limited. For example, if the majority of sales are on a cash basis, with credit being the exception rather than the rule, you can manage all outstanding invoices on a single account.
Budgets can be used for credit limits. The customer's credit limit is entered as a perpetual budget amount on the history view of the customer account or on the accounts receivable report. It can be changed at any time and a complete history of the credit limit is maintained. The history is very useful for analyzing a customer's credit performance. In addition, the analysis view of the accounts receivable report provides identification of credit problems at a glance. It may be useful to keep one window open on this report to monitor customer credit as sales orders are recorded in the other window. Breaches of the credit limit are immediately reflected by the report.
Using the accounts receivable report, NewViews tracks sales by customer automatically. Debit amounts are selected to report sales for any period. The analysis view provides the ability to display sales various periods simultaneously in any of the forms available (i.e. amounts, variances, and percentages). In addition, monthly debit amounts can be selected on the history view of an account to display the entire history of sales to a customer.
In NewViews, any account can be managed using either the balance forward or open item method and these methods are not mutually exclusive. You can use the balance forward method for some customers and the open item method for others and you can switch from one method to the other at any time. However, if you employ both methods you should separate balance forward from open item accounts on the same or different reports to easily identify the method used for any customer, to conveniently produce aged reports that include only open item customers, and to produce statements of the correct type automatically using procedures.
To switch from open item to balance forward, print the open ledger view as the final open item statement. Continue by using the balance forward method. To switch from balance forward to open item, print the final balance forward statement, close all items, and add a boomerang transaction with an amount equal to the balance of the account. The boomerang transaction creates two items on the same account, one with a positive amount, and one with a negative amount. Close the negative item. The open ledger view then contains one item with an amount equal to the total due. Continue by using the open item method.
It should be clear that in NewViews open item and balance forward methods differ only in the way accounts are managed. These differences are summarized below for reference:
An alternative method can be used to manage balance forward accounts. In the balance forward method described earlier, a statement is produced using the print statements command with the appropriate date. In this case the open view is used to produce the customer statement and then all items on the open view are closed. Transactions appear on only one statement but they are retained on the closed view indefinitely.
A portion of total receivables should be estimated and allocated for bad debts. For this purpose an allowance for bad debts account is kept on the balance sheet, contra to AR, and an account for bad debt expense is kept on the income statement. At the beginning of each fiscal year bad debt is estimated for the upcoming year and twelve transactions (one dated at the end of each month of the new year) are added to the allowance for bad debts account, posting to the bad debt expense account. During the year, when all or a portion of a customer account is determined to be un collectible, a transaction is added to the customer account, posting to the allowance for bad debts. The balances of both accounts are reduced. At the beginning of the next fiscal year, the allowance for bad debts is again adjusted and the process is repeated.
You can use variations of the above method. For example, transactions added to customer accounts to recognize bad debt can be posted directly to the bad debt expense account. This is known as the direct write-off method. If this method is used, the allowance for bad debts account is not required, but bad debt expenses are added in periods that do not necessarily correspond to the period of the related revenue.