Revenue Cycle Management : Best Practice Series

-Maintaining accounts receivable aging reports and constantly review and resolve past due, credit, and debit

The company have generated very low operating cash flows, which is caused by a negative net income(16, 55) in 94,95, again with sales going down and cost of goods sold increasing. The company current ratio (2.3, 2.1, 2.5) in 93, 94, 95 are indicating satisfactory but when analyze quick ratio (1.1, 1.1, 1.3), and we also know that sales are down which mean more inventories. Now the account payable days has been increasing (49, 62, and 66). They have been delaying there payment which mean more cash on

The basis of the revenue cycle in Epic is the Hospital Account Record, often abbreviated as the HAR.

* Documents used: customer order, sales order, shipping document, sales invoice, sales journal, remittance advice, bank deposit list, cash receipts jornal, credit memo, sales return and allowance journal, uncollectable account authorization form, a/r master file, a/r trail balance, monthly statement

Although the company seems to be profitable, it has faced shortage of cash. It happened due to increase in Accounts Receivable as well as Inventories. On the other hand, Accounts Payable does not increase that rapidly and difficulties regarding cash collection become evident. Furthermore, the cash collection cycle becomes larger (59 days in year 2003, while more than 70 in year 2006).

In order to confirm the accounts receivable balances, I decided to use positive confirmations since this was my first time auditing the company and the collateral for the loan would be the receivables. The confirmations helped to verify the accuracy and existence of the accounts. I also calculated the Receivables Turnover Ratio in order to better evaluate the overall success of collection on accounts. The sample size that I chose was determined by the factors of tolerable misstatement, inherent risk, control risk, achieved detection risk

Accounts receivable are amounts owed by customers on account. They result from the sale of goods and services on credit. These receivables are generally expected to be collected within 30 to 60 days. They are typically the most significant type of claim held by a company. Accounts receivable and notes receivable resulting from sales are also known as trade receivables. Accounts receivable resulting from sales are referred to as trade receivables in Alcatel's financial statements.

The interview with Colin Smith, from Office Products Depot, meant I was able to identify the accounts receivable subsystem they used and their accounts receivable management. I focussed on their policies for the offering and checking of credit, managing credit levels, charging the credit customers, receiving payment from credit customers and the general management of credit customers. I will be using the information from the interview with Colin as well as information from fictitious accounts receivable to explain their policies.

J reflects department store chain. This industry is a retail business; therefore, there is a large amount of inventories. This industry also has high accounts receivable because usually customers pay with credit cards which are billed at the end of the month. However, sometimes, customers forget to pay their bills on time, and the bills are brought to next month. Therefore, the collection period is approximately 2 months.

Trace items returned to the receiving report, taking note of quantity and date received (S‑4).

Tighten up collection of receivables so that receivables account for less than 19% of Sales (1985). Pursue more aggressive strategy of collections;

University of Phoenix. (2015). Working capital simulation [Multimedia]. Retrieved from University of Phoenix, FIN571 website

11. Accounts receivable turnover and days sales in accounts receivable for the last three years:

Accounts receivable turnover is the second method by which a company’s trade receivables’ liquidity can be evaluated (Gibson, 2011). Žager et al. (2012) noted turnover ratios should be as high as possible as this indicates a firm’s ability to convert its assets more often. 3M’s accounts receivable turnover for years 2007 and 2008 is shown in Exhibit 2. In 2007, 3M turned its accounts receivable over 7.12 times and 7.70 times in 2008. This calculates into a turnover of its accounts receivable every 51.28 days in 2007 and 47.38 days in 2008. The increase in accounts receivable turnover times per year (decrease in number of days to turnover accounts receivables) from 2007 to 2008 is a positive trend for 3M. It suggests, along with the prior calculation, the management of receivables is likely to be improving in efficiency.

Along with these, it is also evident that the company must fix its processes involving bad debt accounting and revenue recognition. They should also attend to their accounts receivable to come up with better terms that would make collections faster and more efficient.