Open Item Accounting Method constitutes a common practice for the billing of Corporate Companies and Other Licensed Operators (OLOs) Accounts, primarily because it offers great flexibility in payments allocation and matching as well as in processing of invoices disputed amounts.
To elaborate further on this, according to the Open Item Accounting Method, each generated invoice constitutes an open item against which a payment is allocated. Moreover, the outstanding balance consisted of the previous invoices is not embedded in the next invoice.
On the other hand, according to the Balance Forward Accounting method implemented mainly for Residential, Professionals, SOHO etc, each generated invoice consists of prioritized subtotals (e.g. interest-bearing amounts, non-interest-bearing amounts, etc). These prioritized subtotals, stemming from all generated invoices, form the account balance. A payment in this case is not allocated towards a specific open item (i.e. invoice), but towards the whole account outstanding balance covering the subtotals of the highest priority and in case of the same priority the oldest ones (FIFO). Also, the outstanding balance consisted from the previous invoices is actually embedded in the next invoice.
Apparently, the aforementioned Balance Forward Accounting practice is much more complicated and more difficult to follow when, for example, processing invoice disputed amounts that must not get covered whatsoever, since a payment may very well cover disputed amounts of older invoices.
No comments:
Post a Comment