Accounts Receivable Overview

Review the below standard for guidance on how to properly record non-student accounts receivable at Indiana University. The Office of the University Controller is in the process of converting Standard Operating Procedures (SOPs) into IU accounting standards. As such, these SOPs are no longer being updated. Information is as current as of the date of last revision available on each SOP. Please continue to check back as SOPs are converted into standards within this book.

• ARSOP 2.0 – Allowance for Doubtful Accounts
• ARSOP 3.0 – Direct Write-Offs
• ARSOP 4.0 – Write-Off Recoveries
• ARSOP 5.0 – Write-Off Reporting
• ARSOP 6.0 – KFS Customer Invoice Adjustment edocs
• ARSOP 7.0 – Credit Card Fee Distribution
• ARSOP 8.0 – Access to the Electronic Payment Claims Table
• ARSOP 10.0 – Invoicing Indiana University Foundation Accounts
• ARSOP 11.0 – Receipt of IUF Gift Money

UCO-AST-2.02: Non-Student Accounts Receivable

Prerequisites

Prior to reading the Non-Student Accounts Receivable standard, it is beneficial to review the below items to gain foundational information:

1. FIN-ACC-350 Accrual Accounting
2. FIN-ACC-490 Non-Student (External) Accounts Receivable, Annual Write-off Report
3. FIN-ACC-500 Write-Off Accounts
4. FIN-TRE-120 Processing Revenue
5. FIN-TRE-121 Establishing and Modifying Revenue-Producing Activities (RPA)
6. UCO-IRR-1.00 Internal Controls Standard
7. UCO-CLS-1.00 Accrual Accounting Standard
8. Financial Statements Standards
9. Accounts Receivable Year-End Closing Reminder
10. Standard Operating Procedures – Accounts Receivable
11. Accounting Fundamentals Standards

Preface

This standard discusses Non-Student Accounts Receivable (NSAR) and how it impacts financial accounting and reporting at Indiana University. Information presented below outlines a general understanding of non-student accounts receivable and the corresponding requirements for units that have NSAR.

Introduction

Non-student accounts receivable includes any charges that are billed outside of the Bursar’s Student Information System (SIS). Non-student accounts receivable is comprised of the following two categories:

1. Non-Student External Accounts Receivable: These are funds owed to the university by outside entities that have received goods or services for which payment is expected. Specifically, this accrual includes charges billed to external parties and any charges billed to students outside of the SIS.
2. Non-Student Internal Accounts Receivable: These are funds owed to one Indiana University department in exchange for furnishing goods and services to another Indiana University department for the convenience of the university and a charge or fee directly related to, but not more than, the allowable cost to provide the goods or services. Units that provide goods or services to other university departments are commonly referred to as Recharge/Service Centers. Please refer to UCO-RSC-1.00 Rate Submission Requirements for Recharge Centers for additional information.

Importance and Impact of Accounts Receivable

Accounts receivable management is a fundamental aspect of any successful business operation. When properly managed, the accounts receivable function:

1. Ensures the university’s external financial statements are fairly stated as required by Government Accounting Standards Board (GASB) and in compliance with Generally Accepted Accounting Principles (GAAP).
2. Improves financial controls of the organization.
3. Generates and maximizes cash inflows.
4. Measures the amount of funds customers owe the university for goods and services already provided.
5. Reduces the bad debt expense incurred for customers that repeatedly do not pay their debt in a timely manner.

Non-Student Accounts Receivable System Requirements

Per policy FIN ACC-490 Non-Student Accounts Receivable, Annual Write-Off Report, all university operations billing for goods or services to external customers are required to use the Kuali Financial System Accounts Receivable Module (KFS AR), unless the organization has an independent accounts receivable system that has first been approved by the campus and then the Office of the University Controller.

Limited exceptions to use external systems, rather than KFS AR, are granted to departments. Exception request approvals are typically limited to those circumstances where the invoice would need to include confidential legal data (i.e., HIPAA data) or where a unit has an applicable business reason, such as a fully integrated subsidiary system specific to their operation.

A hybrid approach is the first alternate option, where KFS AR is utilized in conjunction with the requested external system. The hybrid approach allows billing organizations to include supplemental information that may be required by the customer, while continuing to use the standard KFS AR invoice and payment processing options in the KFS AR module.

In the event that a unit has HIPAA data or a system fully integrated and specific for their operation, a unit may be granted an exception for using KFS AR. To request an exception, the department must complete the AR Questionnaire (Request to use non-KFS system) from the UCO website. This questionnaire contains the justification by the department and is stored in the NSAR External Systems Questionnaire Admin Panel (NESA) application. Once the questionnaire is submitted, the Non-Student AR Manager completes an extensive review of the system and outputs and determines if the exception request is denied and the department must use KFS AR, is granted as a hybrid approach as discussed above, or is granted a full exception.

The department making the request then receives an exception form with the appropriate determination. For those that receive an exception, the NESA application is updated and will automatically send a reminder close to the expiration date for renewal. The exception is generally for a three-year period with a brief review required by the AR Manager and Assistant Controller at the end of the period to ensure there are no changes to the external system.

Accounts Receivable Entries

KFS Accounts Receivable reflects the accounts receivable balance due to the university on a daily basis as invoices and payments are electronically entered into the accounts receivable system. KFS Accounts Receivable users with unbilled sales and organizations using an approved independent accounts receivable system may use either the adjusting method or the accrual method for recording accounts receivable in the current period. For a list of the appropriate accounts receivable object codes, please refer to the AR object code list . The Accrual Voucher (AV) document should be used to record these transactions when they meet the proper threshold. (See the UCO-CLS-1.00 Accrual Accounting Standard for guidance on recording an accrual transaction using the AV).

Accrual Method

The accrual method is used to record the total ending accounts receivable balance at the end of each month. This entry will automatically reverse in the following month and a new accrual entry will be recorded by the department. This method can be used to record either unbilled KFS Accounts Receivable at month end or the total accounts receivable balance at month end if the department is using an approved independent accounts receivable system. UCO prefers the accrual method.

If KFS Accounts Receivable is being utilized and there are no unbilled sales at the end of the month, there is no need to manually record (accrue) an accounts receivable entry on an auxiliary voucher. If unbilled KFS Accounts Receivable is being accrued, all unbilled KFS Accounts Receivable sales at month end are totaled and accrued using an auxiliary voucher accrual (AVAE) to object code 8122. The following month, the department invoices these customers through the KFS Accounts Receivable system, and the AVAE is reversed automatically.

If an approved independent accounts receivable system is being used, the entire accounts receivable balance is recorded on an AVAE at the end of the month. The following month a new AVAE document is issued, and the original AVAE is reversed automatically. Organizations with an approved independent accounts receivable system should record the accounts receivable balance using an Aged Receivable Report generated by the independent system.

Adjusting Method

The adjusting method is used to adjust accounts receivable on a regular basis; this can be daily, weekly, or monthly, depending upon the activity level. Unlike the accrual entry, the adjusting entry does not reverse in a subsequent period. Instead, the adjusting method requires an entry that adjusts the total accounts receivable balance for any charges or payments impacting accounts receivable for the period. At the end of the month, all internal unpaid invoices should equal the internal accounts receivable general ledger balance (8117) and all external unpaid invoices should equal the external accounts receivable general ledger balance (8119).

Best Practices

1. Complete the AR Checklist on a monthly basis.