STEP nAME RECEivABLES MAnAGEMEnT
Step number 6.4.1
organizational Role Head of Finance Accountant
inputs Approved advance requests outputs Aging reports
integration Points Collaboration with management as well as Purchasing and Programming departments Summary Amounts owed to the organization should be
recorded as receivables, which are assets of the organization. They should be closely monitored to ensure timely collection or liquidation and should be accurately stated and appropriately classified.
Types of Receivables
A separate general ledger account should be set up for each type of receivable that the organization expects to administer. Types of receivables that are common to many organizations include the following:
1. Trade Receivables – Balances arising from trade sales, where applicable. Balances in this account are cleared through cash/ check/wire remittances.
2. Travel Advances – Amounts advanced to employees for business travel purposes. Balances in this account are normally cleared by the submission of approved travel expense reports and or cash receipts, supported by the appropriate documentation. Such advances are to be fully liquidated at the end of each trip. new advances should not be issued before an old advance is fully liquidated.
3. Employee Receivables – Amounts owed by employees for payments made on their behalf. These balances are cleared by collection of cash/checks or by payroll deductions where allowed by law.
4. Project Advances – Advances to subrecipient organizations to conduct approved project activities. Balances in this account are normally cleared through the submission of liquidation reports. The amounts
employee within the period dictated by local labor law as deductions against wages to be paid. The organization should have a policy that will be applicable with local laws regarding the repayment of salary advances.
6. Advances to Suppliers – Amounts paid to suppliers prior to the receipt of goods or services. This account is cleared when the goods purchased are delivered or the service is rendered by netting the advance against the amount due.
Standard Receivables Management Disciplines
The following are standard disciplines that aid in managing receivable balances: 1. The organization’s policies should clearly indicate when each type of
receivable is due. The collection or liquidation deadlines should be communicated in writing to the other parties. When appropriate, a deadline should be incorporated into the terms of an agreement with the party to whom funds will be advanced.
1. One or more organization officials should be assigned the responsibility of monitoring open balances and for following up on delinquencies. 2. Advances should not be issued to parties that have delinquent balances. 3. Each balance should clearly indicate the party that owes the funds.
a. If the organization uses a computerized general ledger system, each owing party should be assigned an identifying number (vendor code) that is entered into the general ledger or a subledger every time a receivable transaction with the owing party takes place.
b. If the organization uses a manual general ledger, it is
recommended that the receivable transactions with the various debtors be also recorded in a separate subsidiary ledger or other record that is summarized and reconciled to the general ledger monthly. A separate subsidiary ledger or other record should be maintained for each receivable general ledger account.
5. Shortly after the books are closed each month, the organization’s Finance department should provide management and the employee(s) assigned the responsibility for receivables collection and follow-up reports for the open receivable balances. The reports should be “aged” to show when each open balance arose to facilitate the monitoring and collection efforts.
6. The general ledger system or the subsidiary ledger should provide a complete audit trail to support each open balance.
7. Reserves should be set up for those account balances that appear to be uncollectible. A reserve is set up by recording a debit to a bad debts expense and a credit to a receivables reserve account.
A village leader in the Democratic Republic of the Congo keeps order while beneficiaries wait to receive their cassava seed in the north Kivu province.
It is recommended that approval from a senior official such as the executive director be required to set up reserves.
8. Account balances that are uncollectible should be written off. In a policy, the organization should describe the process to be followed for write-offs and the approval(s) needed. Receivable balances are written off by recording a debit to a reserve account and a credit to the applicable receivable account. It is recommended that approval from a senior official such as the executive director be required to write off receivable balances.
FINANCE BuSINESS prOCESS 6.5 –
FIxED ASSET ACCOuNTING
Fixed assets are the organization’s tangible long-term property, plant, and equipment that have estimated useful lives of more than one year.
The Finance department should record each fixed asset addition in the general ledger and in the Fixed Assets register (ledger) as per the following guidelines:
• If the asset was purchased from the organization’s unrestricted private funds, the accounting entry would be made on a cash disbursement voucher as a debit to the fixed asset account and a credit to cash. • If the asset was received as an-kind contribution from a private donor or
as an unencumbered in-kind award from a grant donor, the accounting entry would be made on a general journal voucher as a debit to the fixed asset account and a credit to in-kind contributions revenue.
• If the asset was received from a grant donor that retains ownership of the asset and requires its approval for disposition of the asset at the conclusion of the grant award, the accounting entry would be made on a general journal voucher as a debit to the appropriate grant line item expense account and a credit to the grant liability account. (The liability account will be reduced when the organization recognizes grant revenue for the expense recorded against the grant.) *
* note – Generally accepted accounting principles (GAAP) require that
long-term assets be recorded as fixed assets and depreciated over their estimated useful lives. For fixed assets purchased with grant funds or received from a grant donor that retains ownership of the asset, additional accounting entries will be needed to comply with GAAP while accommodating the grant donor’s reporting requirements. Organizations should seek guidance from their external auditors on any additional accounting entries needed.
prOCESS 6.5 FIxED ASSET MANAGEMENT
EAMSet up and
Maintain a Fixed Asset Register 6.5.1 Calculate and Record Depreciation Expense 6.5.2 Record Fixed Asset Disposal 6.5.3 Start Process End Process Conduct Counts of Fixed Assets 6.5.4
STEP 6.5. 1 – SET uP AnD MAinTAin A FixED