BILLING AND ACCOUNTING FOR RECEIVABLES - 8291.1

(New: 10/2020)

(Content added from 8776)

Billing for Receivables

The invoice shall be sent to the debtor as soon as possible as practical and within 30 days after the event giving rise to the AR. When agencies/departments send an invoice or other form of a document requesting payment to the debtor, it must include, at a minimum, the following information:

• The name or description identifying the debtor
• Nature (description) of the event
• The dollar amount
• Where payment is to be made
• The expected due date for payment

To be considered a valid AR, the following common characteristics must be present:

• Legal authority exists to bill for the amount owed.
• Amount due is derived from an arithmetical calculation, schedule of fees, or other methods to arrive at the amount.
• Sufficient documentation exists to support the AR. For example, the agency/department must have the debtor name and an invoice or other document identifying the amount owed.

Accounting for Receivables

Agencies/departments should follow the guidelines below for accounting for ARs:

• Record ARs promptly and accurately within 30 days following the occurrence of the event that gave rise to the AR.
• For employee payroll ARs, establish procedures for the agency’s/department’s human resources unit to notify the accounting unit within the 30-day guideline for recording ARs.   
• ARs are recorded based on receipt classification and type of debtor. The most common types of receipt classifications are abatements, reimbursements, and revenues. See SAM sections 7620 and 10407 - 10416 for general ledger account descriptions and 10506 for the standard journal entry.  Agencies/departments must ensure proper recordkeeping is maintained.  All efforts made toward the collection of receivables should be documented to include the dates and types of collection efforts (e.g., letters, offset, phone calls, e-mails). AR source documents (e.g., invoices), and documentation of collection efforts, payments, and any adjustments should be retained for at least four years after the receivable has been paid.

Government Code section 16302.2 provides that “Upon approval of the Director of Finance, any state agency with respect to any amount required to be shown on any form prescribed by the agency, or any amount of credit or refund, or any amount to be collected as a deficiency or underpayment of any tax, penalty, interest, license or other fee, or any other payment, may provide by regulation for the disregard of the fractional part of a dollar, unless it amounts to fifty cents ($0.50) or more, in which case it shall be increased to one dollar ($1).” Requests for approval should be sent to Finance, FSCU.

Contingent ARs

Contingent ARs are those ARs for which there is some uncertainty of the legal obligation but have a prospect of a favorable settlement. Generally, a contingency involves some future determination, e.g., judgment or settlement. Contingent ARs will be recorded in the accounting records at the time the AR arises to debit 1209400- Contingent Receivables (Legacy Account 1380) and Credit 1290000-Provision for Deferred Receivables (Legacy Account 1600).

Contingent ARs will be reversed if reclassified to another AR-type (e.g., AR- Revenue). This may occur when either a judgment or settlement is made or the disputed amount has been finalized. Also, it may be appropriate to reclassify an AR to a contingent AR. Such reclassification should be based upon the degree of uncertainty associated with the validity or amount of the AR. The reclassification should not be based solely on a debtor’s action to contest an AR.