REA Modeling Steps 1 Identify the significant business events 2 Identify the related resources 3 Identify the related internal and external agents 4 Identify relationships between entities 5 Specify the cardinalities of the relationships 6 Identify the attributes of the REA entities and relationships

Operating Procedures Client Services, Billings and Cash Collections

Prospective new clients may come from existing partner contacts, may be introduced by staff or current clients, or may simply telephone or write to the office. After discussion at a partners meeting, the decision to accept prospective clients is taken by Richard Ash, who completes a New Client Form recording details, assigns an account code (often referred to as a client code), and designates a partner (possibly himself) as the Client Partner. Richard files these forms by client code. He sends a copy of each form to Sarah Holly, who opens a new client file; Sarah maintains a separate alphabetical sequence of these files on behalf of each partner. Client Partners are responsible for agreeing details of assignments for their clients, which are summarized in a Letter of Agreement sent to the client. Key details, including an initial time budget, are summarized on a New Assignment Form, which is signed by the Client Partner and approved and signed by David Elm, before being added to the client file along with a copy of the Letter of Agreement. A copy of the New Assignment Form is sent to Amy Rowan; Amy uses it to assign a manager and staff before filing the form by assignment deadline. For certain assignments (e.g., audits) Richard Ash also designates one of the partners as Review Partner.

Account codes are the central feature of time recording and accounting within the firm: they are used to track all time spent, on both client service and internal activities, by all members of staff, as well as all expenses incurred and fees received. The firm uses a series of eight digit codes formed as follows: the first four digits are unique client or activity identifiers; the next two digits identify the type of assignment (bookkeeping, financial statement compilation, auditing, tax preparation, etc.); the seventh digit is a "sequence code" used only in rare instances when the firm is carrying out multiple assignments of the same type for the same client - otherwise it is set at '1'; finally, since correct use of account codes is essential and errors need to be detected and corrected early on, the eighth digit is a mod-10 check digit (based on the Luhn algorithm used for credit cards, etc.). As regards the first four digits: codes in the sequence 0000-0999 are not used; codes in the sequence 1000-7999 are reserved for client work; codes in the sequence 8000-8999 are used for training courses (with the activity identifier fixed at 88); and codes in the sequence 9000-9999 are for other non-chargeable activities including office administration (with the activity identifier fixed at 99). For example, the very first client assignment, a bookkeeping job, was assigned the code 10000214; professional staff time up to 40 hours per week not spent on any client, training, office or other productive activity, or vacation, is charged to the code "Available" - 99999914.

Each assignment has a designated Assignment Partner (sometimes referred to informally as the "audit partner" or the "tax partner," etc.); in general, this will be the designated Client Partner. However, when specialized skills are required, or there is a requirement for periodic rotation of partners, Richard may designate a different Assignment Partner though the Client Partner retains responsibility for the relationship with the client. For instance, David specializes in audit, Kenneth in personal and estate planning, Robin in bookkeeping and compilations, and Thomas in taxation; Richard himself specializes in business formation, valuation, and succession planning.

The firm's accounting period is July-June. Each spring, David Elm and Richard Ash review the client portfolio, and after discussion with the Client Partners, determine any clients who will not be retained. Following this client retention review, Richard writes to any clients who are not to be retained; a copy of the letter is passed to Sarah Holly to be added to the client file, along with a Client Retention Review Form documenting the decision and the reasons for it, signed by David and Richard. David Elm and Kenneth Ivy then meet to assign managers and in-charge accountants for the forthcoming year to each client, taking account of prior experience, clients' and partners' wishes, etc. In-charge accountants are typically new each year (though they may have assisted on the assignment in previous years); more senior managers are less likely to be re-assigned. Kenneth sends a memorandum to managers and in-charge accountants to advise them of their assignments for the forthcoming year. Dr. Peter R. Gillett - Rutgers Business School-Newark and New Brunswick - 9/4/17 Each summer, the in-charge accountant and manager for each recurring assignment plan a budget, after discussions and possibly meetings with the client; details are confirmed with the client in a Budget Letter. A Budget Form is completed to document the staffing requirements; copies are passed to Sarah Holly for inclusion in the client file (along with a copy of the letter) and to Amy Rowan for staff planning purposes. Amy files her copy by assignment deadline. Each week, based on Budget Forms (and New Assignment Forms where appropriate), Amy allocates staff for the following week; associates call Amy each Friday to find out their upcoming assignments.

On Friday afternoons, all employees complete a three-part Time Sheet recording by account code the time spent that week on each assignment or other activity, in units of ten minutes, along with any expenses chargeable to the client, supported by receipts (which are attached to the Time Sheets). Along with their Time Sheets, in-charge accountants also submit a two-part Assignment Completion Form for each of their current assignments, showing for each planned activity on the assignment the budgeted time, the time charged to date, and the estimated time to completion. Both documents are submitted to Amy Rowan. Each Monday, Amy checks the previous week's Time Sheets. Time Sheets that are unsigned, contain invalid account codes, or total less than 40 hours, are returned to the originating employee for correction and re-submission. Amy files a copy of accepted Time Sheets by employee number within date, passes the second copy along with the expense receipts to Alan Birch (who files them by date within employee number), and sends the third copy to Nancy Spruce. Amy files the Assignment Completion Forms by client name, and distributes the second copies to the managers to alert them to any possible time over-runs.

Nancy uses the Time Sheets to update the Work In Progress ledger, which shows for each client (or other account code activity) the time and expenses charged by each employee, the value at agreed billing rates, the total value charged, and any amounts already billed or written off. She files the Time Sheets by employee number within date, and prepares a Journal Voucher summarizing changes in Work In Progress which she sends to Ellen Larch to be posted to the General Ledger.

Each month, Sarah Holly prepares Journal Vouchers for any internal expenses (e.g., telephone calls, Xeroxing, etc.) that are to be charged to client accounts, as requested by mangers. She files one copy in the appropriate client file, sends the second copy to Ellen Larch to be posted to the General Ledger, and forwards a third copy to Nancy Spruce to update the Work In Progress ledger. After the end of each month, Nancy extracts copies of the Work In Progress for each client and sends them to the appropriate manager. After discussion with the Assignment Partner, the manager indicates on the copy of the Work In Progress extract what is to be billed as an interim or (if the assignment is completed) final billing, in accordance with arrangements agreed with the client, and any time or expenses to be written off, and signs the copy. The copy is passed to the partner, who also signs it to indicate approval, and returns it to Nancy Spruce. From this copy, Nancy prepares an Interim or Final Invoice. A copy is mailed to the client together with another that serves as a Remittance Advice; a copy is passed to Sarah Holly for inclusion in the client file, and Nancy files a fourth copy (with the annotated Work In Progress extract attached) in numerical sequence, after updating the Work In Progress and Accounts Receivable Subsidiary ledgers. An updated extract of the Work In Progress ledger accounts for each client is sent to Sarah Holly for inclusion in the client files. Nancy also prepares a Journal Voucher summarizing billings and write offs, which she sends to Ellen Larch for posting to the General Ledger. Extracts of Work In Progress for non-chargeable account codes are sent monthly to Robin Oak, who reviews them, follows up with individuals by telephone whenever she has concerns, and files them numerically. Following the completion of billing each month, Nancy prepares a Combined Percentage Report. This report shows for each client the budgeted and actual time and billable value, the dollar amounts billed and written off, total amounts collected, the percentage of the budgeted value worked, the percentages billed and written off, the percentage of billed amounts collected, and the combined recovery percentage. Copies of the complete reports are sent to all the partners; managers receive copies of the reports relating to their own clients. The partners review their Dr. Peter R. Gillett - Rutgers Business School-Newark and New Brunswick - 9/4/17 copies, follow up as appropriate, and pass their copies to Sarah Holly to be filed in the appropriate client files. Managers file their own copies alphabetically by client. Robin Oak opens the mail each day, endorses any checks, and prepares a pre-list of all checks received. She passes copies to Sandy Beech, Ellen Larch, Nancy Spruce (with the Remittance Advices attached), and Martin Maple (with the checks). Nancy files her copies chronologically after using the Remittance Advices to update the Accounts Receivable Subsidiary Ledger. Ellen Larch creates a Journal Voucher from the pre-list, attaches the pre-list, posts the General Ledger (debiting one of the firm's cash accounts), and files the documents chronologically. Martin Maple prepares a deposit slip from the pre-list, deposits the checks at the bank, files the pre-list in numerical sequence, and passes a copy of the deposit slip stamped by the bank to Sandy Beech. His other duties include correspondence with banks, physical control of unused checks and used check stubs, reviewing cash balances and making cash transfers, making recommendations to the partners regarding any additional finance that may be needed from time to time, and general administrative assistance to Sandy Beech. He also maintains a small Petty Cash fund for incidental expenses on an imprest system.

Each day, Sandy Beech compares the stamped deposit slips with the pre-list totals. Once a month, he reconciles movements on the cash accounts in the General Ledger with statements received from the bank, deposits slips, and check stubs. Martin Maple is responsible for arranging transfers between bank accounts with the bank as needed following his own review of cash balances, or as instructed by Sandy Beech (e.g., in the case of payroll). He prepares Journal Vouchers recording any such transfers, which are approved by Sandy Beech and then sent to be posted by Ellen Larch.

Nancy Spruce telephones clients if fees have not been received within 30 days of billing. After 60 days, she passes an extract from the Accounts Receivable Subsidiary Ledger to the Client Partner, who pursues the matter with the client; the Client Partner then returns the Accounts Receivable Subsidiary Ledger extract and, if necessary, completes a Fees Write Off Form, passes a copy to Sarah Holly to be filed, and forwards a copy to Nancy Spruce. Nancy posts the Accounts Receivable Subsidiary Ledger and prepares a Journal Voucher which she sends to Ellen Larch for posting to the General Ledger. She files the Fees Write Off Forms numerically by client.