Professional Documents
Culture Documents
RATIONALE: To account for uncollectible Non Student Accounts Receivables in the Kuali Financial
Systems (KFS) Accounts Receivable module and external receivables solutions
approved by Financial Management Services.
ARSOP: Departments with an average accounts receivable less than $500,000 and all Non
Reporting billing organizations are not required to record an Allowance for Doubtful
Accounts. Rather, the direct write-off method may be used to record uncollectible
accounts.
An actual invoice must be eliminated from the detail of accounts receivable when all
collection efforts have been exhausted by the department. Amounts over 12 months
old lacking current productive activity are required to be written-off.
Use the Customer Invoice Write-off (INVW) doc to clear the invoice. The INVW will
increase Bad Debt Expense and reduce Accounts Receivable.
Example:
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KFS INVW System Generated Object Debit Credit
Entry Code
Units using accrual entries (AVAE documents) to accrue for Accounts Receivable that
record Bad-Debt write-offs as above need to record the following additional
adjusting entry using the AVAD document:
This entry re-establishes the original receivable and income. An omission will result in
a credit receivables balance and no income. This entry should only be done once
amount has been removed from Accounts Receivable, for non-KFS Accounts
Receivable users.
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Note: The allowance for doubtful accounts (contra asset) needs to be reduced as
well by eliminating the allowance for bad debt expense amount. Without
adjusting the Allowance and the Allow. for Bad Debt (Exp), both would be
overstated.
Allowance Method:
Direct Method:
Collection Agency: Should the funds later be recovered via a Collection Agency, the
entry to record the recovery of these funds is as follows for both KFS and Non-KFS
Accounts Receivable users: NOTE: KFS Accounts Receivable users should not create a
new invoice. Collection agency fees and charges are considered an expense of the
unit generating the charges and should be charged to the appropriate object code—
5110.
To record the cash receipt and amount retained by the collection agency:
Cash Receipt Document entries: Object Code Amount
Collection Fees (Debit Entry) 5110 ($1,403.72)
Other Income (Credit Entry) 1800 $4,679.08
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Writing-off a specific invoice using the Allowance Method:
An actual invoice must be eliminated from the detail of accounts receivable when all
collection efforts have been exhausted by the department. Amounts over 12 months
old lacking current productive activity are required to be written off. A debit
(decrease) to Allowance for Doubtful Accounts and a credit (decrease) to Accounts
Receivable must be made so the receivables balance is decreased appropriately.
Use an Invoice Write-off (INVW) doc to clear the invoice. The INVW will increase Bad
Debt Expense and reduce Accounts Receivable. An AVAD should then be created to
reduce Allow. for Bad Debt (Exp) and the Allowance for Doubtful Accounts.
Example:
Note: Both of these entries are necessary to increase bad debt expense and
decrease AR. The allowance for doubtful accounts (contra asset) needs to be
reduced as well by eliminating the allowance for bad debt expense amount.
Without adjusting the Allowance and the Allow. for Bad Debt (Exp), both would be
overstated.
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AVAD Object Code Debit Credit
Allow. for Doubtful Accounts 89xx $500.00
Accounts Receivable 8119 $500.00
DEFINITIONS: Aged Receivable Report as of June 30 should include customer name and
outstanding balance, aged for current, 30, 60, 90, and 120 days. Report should be
system generated by KFS accounts receivable or by accounts receivable system
previously approved for use by Auxiliary Accounting in consultation with campus
administration.
Average Accounts Receivable should represent the sum of the prior fiscal year's
twelve months accounts receivable balances divided by twelve.
Materiality should be set at a level at which a user of the financial statements would
not be influenced if this information were missing. Materiality should be agreed upon
with campus administration for each unit individually.
Non-Student Accounts Receivable are charges billed outside of the bursar system to
students, as well as charges billed to external parties by the university for goods or
services.
Productive Activity is having a recent (within 30 days) promise to pay, in writing and
signed by the debtor, or a current payment plan in place on the account. Additionally,
Non-Student AR requires that all non-student payment plans have payment activity
within 90 days of the plan effective date of the payment plan, or within 90 days of the
invoice aging to 365 days old, unless otherwise stated in the terms and conditions of
payment plan.
RESPONSIBLE
ORGANIZATIONS: All auxiliary units reporting non-student accounts receivable
1"The matching principal means that revenues generated and expenses incurred in generating those revenues
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should be reported in the same income statement. Revenues for an accounting period are recognized in
accordance with the realization principle. Then the expenses incurred in generating those revenues are
determined in accordance with the matching principle. Thus, expenses are reported in the income statement
for the accounting period in which the related revenues are recognized." (Intermediate Accounting, by
Chasteen, Flaherty, and O'Conner; 1992; McGraw-Hill, Inc.; p.60).