Unidentified Accounts Receivable Procedures

by Sheila Shanker; Updated September 26, 2017
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Many businesses that are not cash-based carry accounts receivable in their books. These are amounts that customers owe the firm and are usually recognized as revenues in the income statement. This process can be challenging, and often money is received that cannot be readily applied to a customer account. Procedures in this area specify techniques to make this work more streamlined and less time consuming.

Procedure 1: Deposit Funds

Deposit all checks and cash received, even if they cannot be identified with customers in the accounts receivable system. Process credit card payments promptly too. You could make a note in the deposit slip regarding the unidentified check to document the situation. Copies of deposit slips are usually available online, but not the deposit items. Make copies of the items that cannot be identified right away and file them by date of receipt.

Procedure 2: Research

Pick up the file with the oldest items and work on those first. Try to find similar names in the system; the customer name could have been misspelled. You could search all open invoices that match the payment amount or another particular detail about the payment. Some accounting departments have files on unidentified items that have been resolved so that if you receive another check from the same customer, you don't need to waste your time with identification issues.

Procedure 3: Contact Sales Department

Contact sales department employees and inquire about payments that cannot be matched in the system. Since the receivables originate with the sales department, salespeople are likely to remember the sale and be able to provide you with some useful information. The money could be for a down payment on a sale not yet recognized and, if that's the case, the sales department needs to create the receivable in the system. If you find out that funds were received for a sale not connected with the sales department, notify the department involved and the accounting manager.

Procedure 4: Specific Account

Create a specific general ledger account to be used for unidentified receivables. This account is often created as a liability with a credit balance. When you receive an unknown payment, you debit cash and credit the unidentified receivables account. Once you identify which customer to apply the money to, you could reverse the journal entry and enter the data in the receivable module. Alternatively, you could use a credit memo to credit the receivable and to zero out the liability.

Procedure 5: Contact Customer

If a receivable cannot be found within the sales department, the next step is to contact the customer and try to get details about the sales. Sometimes a small-business owner may use his own name for the sale but pays with a business check, which cannot be matched with any account. If a phone number is not on the check, you may need to use the Internet to find contact information. Be sure to have the check or a copy of the check in front of you when talking to the customer to allow you to give as much information as possible.

Procedure 6: New Receivable

If after a reasonable time, you still cannot find the customer in your system, ask the controller for permission to create a new receivable in the system, add a note about the situation and apply the check toward this new account. Depending on the amount of the check, it's not worthwhile to spend more than an hour or so trying to apply the funds to the appropriate account. If you have too many of these items, meet with the sales department staff to determine what's behind this problem and try to correct it.

About the Author

Sheila Shanker is a certified public accountant based in California. She writes online courses for professionals seeking CPE hours and has also published the book "Guide to Non-profits: From the Trenches." Her articles have been published in national magazines such as the "Journal of Accountancy," "Architecture Business and Economics" and "Veterinary Economics." Shanker holds a Master of Business Administration.

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