Accounting Best Practices, Fifth Edition

7–7. Conduct Immediate Review of Unapplied Cash

It is a common occurrence for a collections person to call a customer about an overdue invoice, only to be told that the check was already sent. Upon further investigation, the collections staff finds that, for a variety of reasons, the errant check has been sitting in an accounting clerk’s “in” box for several weeks, waiting to be applied to an invoice in the accounts receivable aging. Common reasons for not performing this cash application include not having enough time, not understanding what the check is intended to pay, or because there are unexplained line items on a payment, such as credits, that require further investigation before the check can be applied.

None of the reasons for not applying cash are valid, given the consequences of wasting the time of the collections staff. Only two solutions need to be installed to ensure that cash is applied at once. First, cash application is always the highest priority of whomever is responsible for it, thereby avoiding all arguments regarding other items taking priority, or not having enough time to complete the task. Second, all cash must be applied, even if it is only to an “unapplied cash” category in the accounts receivable register for those items that cannot be traced immediately to an open invoice. In these cases, simply having the total of unapplied cash for a customer clearly ...