[mardybum13]

I’m struggling to understand Control accounts and the role of the General/Subsidiary ledger in the Revenue cycle.

1) Once Billing sends the invoice to the customer and Accounting, the flowchart says Billing should print sales journal and update A/R master file.

2) Once the sale is completed, the flowchart says Accounting should post to the general ledger. And an independent party should reconcile the updated G/L with the updated A/R master file from 1)

3) When a sale happens, A/R records a receivable in the accounts receivable control account in the general ledger and in the accounts receivable subsidiary ledger. Periodically, an independent person should reconcile these two records.

Can anyone explain this? I have no idea what a General ledger or A/R master file is.

[M123]

The term “file” is a rather antiquated term since business don't use physical files anymore. Accounting systems also have data “files” so that could be the applicable term, but then modern accounting systems (Enterprise Resource Planning – ERP) run in databases with tables which reside in files.

So we don't need to get caught up in the term of files but the flow of data.

The accounting system is not just one wild ball of every transaction but different types of transactions occur in different stages and then those all flow into the general ledger.

Let's take that sale. In the enterprise ERP world such as SAP – this would be a “process” called Order to Cash.

So the billing isn't the first step – first the customer gets q quote. Here are the steps:

1. Customer requests a quote for a widget (no posting to GL). (order file)
2. Customer says that's a good quote – let's convert to an order (the cust will send a PO then).
3. *** Various controls will check for customer credit, product availability, and other things. (expect much content around controls)
4. Item ships and customer is billed. Postings to GL are relief of inventory and the sale (DR AR and CR Sales) (customer file, inventory file, general ledger file)
5. Then customer pays. This reduces AR and increases cash. (customer file, general ledger file)

If all of those things were stored in the same place, it would be a horrific and unmanageable mess with very little control and thus risk.

Here is what the files might actually look like:

Customer: Cust account, customer name, payment terms, balance
GL: GL account, transaction date, amount, description
Inventory: Item number, transaction date, quantity, price
Sales: Invoice, transaction date, item, quantity, price per unit, cost per unit, extended price, extended cost, sales rep

AUD - 77
BEC - 81
FAR - 77
REG - 81

REG - 1. Becker only - fail (forgot to study depr - oops); 2. Becker only - Pass
FAR - 1. Becker only - fail; 2. added Ninja Notes and MCQ - Pass
AUD - 1. Becker videos; Ninja Notes, Audio, MCQ, Becker Notes - Pass
BEC - 1. Ninja Notes, Audio, MCQ, Becker Notes - Pass

[mardybum13]

Thank you so much! That makes a lot of sense. But what does this mean? Its from my Becker material.

3) When a sale happens, A/R records a receivable in the accounts receivable control account in the general ledger and in the accounts receivable subsidiary ledger.

And does this mean that Billing and Accounting are essentially doing the same thing in 1) and 2) that I posted?

[M123]

Fair warning – when I try to expound on something usually it creates more questions than answers – but hopefully someone else can chime in from their perspective.

“3) When a sale happens, A/R records a receivable in the accounts receivable control account in the general ledger and in the accounts receivable subsidiary ledger.”

I hope to not butcher this. Let's say we have a separate GL acct for each department in the company. The total AR is the total of those. So let's say department A sells red widgets and department B sells blue widgets. We want to be able to see total AR in the General Ledger but be able to see detail in the “subsidiary ledgers”. The AR account will have the total but the subsidiary ledger will have all the “puts and takes” to AR. Example: customer buys on credit = add to AR. Customer pays bill = subtract from AR. Customer goes bankrupt and receivable written off = subtract from AR.

“And does this mean that Billing and Accounting are essentially doing the same thing in 1) and 2) that I posted?”

No – separation of duties is part of control and thus they should not do the same thing. Generally with today's accounting systems, there will be a “batch” of transactions that are entered and once approved, they post to GL. 1 is billing and sales journal and 2 is the summary of 1 which will go to GL. (There are also “real time” – not batch – systems but approvals still needed).

It's easiest to think in terms of “what is the transaction”. It's also easy to think of this from a consumer perspective. I love Amazon and order from them frequently. Put it into your favorite terms.

1. I add something to the shopping cart in Amazon – it checks inventory but it does not book anything. No transaction has taken place.

2. I check out the shopping cart and then Amazon now has a transaction where they “billed” me all at once. Now they have a cash receipt in the of my payment (transaction = cash receipt) and a sale for the product (sale transaction).

3. Now they have to ship the product – an inventory shipment transaction.

4. My shipment comes in late and it's the wrong product. I file a complaint and they refund my money and give me a courtesy credit. So now we have a refund transaction as well as return transaction as well as a credit balance transaction.

If this was a commercial transaction on credit – then part 2 would be to recognize the sale and accounts receivable, followed by a later payment transaction.

All of these transactions have a gaap treatment that requires posting to the GL. But they are done by different parties in a typical control environment.

AUD - 77
BEC - 81
FAR - 77
REG - 81

REG - 1. Becker only - fail (forgot to study depr - oops); 2. Becker only - Pass
FAR - 1. Becker only - fail; 2. added Ninja Notes and MCQ - Pass
AUD - 1. Becker videos; Ninja Notes, Audio, MCQ, Becker Notes - Pass
BEC - 1. Ninja Notes, Audio, MCQ, Becker Notes - Pass

[Author]

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