Demand Notes / Certificates of Indebtedness - ACR/ACP Setup-Process

Setup

INV Setup

· Add a product category for “Customer Notes.” The Unit of Measure code for the product category should be “each.” Add only service items to this product category.

· Add a service item for each type of note you will be “selling” to customers. You might, for example, have a Demand Note item and a 3-Year C of I item.

ACR Setup

· Add an invoice type for the “Customer Notes – Principal.”

· Also add an invoice type for “Customer Notes – Interest.”

· Add an invoice term code to use exclusively for “Customer Notes – Principal”.
It should be due in 1 day.

· This Scenario requires two separate Finance Charge Tables to work correctly. Add the first Finance Charge Table for each of the rates you will be paying. For instance, if you are paying 3% on Demand Notes and 6.0% on 3-Year C of I’s, you will need to set up 2 Interest Credit Tables. On screen 2 of 3, key in the invoice type range that this finance/interest credit invoice type that the FC/IC table may use to calculate a fee. These tables should be set to calculate Interest Credits on the “Average Daily Balance.” The invoice type on the Interest Credits created should be the same as the above “Customer Note” invoice type. Please see the example below. This is the type of table that will be used to calculate interest monthly. It is only applicable for “notes” that were in the system at both the beginning and ending of the aging period.

The second Finance Charge Table will be used for new notes in the current period and for redeeming notes in the middle of the period. That is for notes that are not in A/R for the full month. An example of this finance charge table is below.

ACP Setup

· Add a voucher type for the “Customer Notes – Principle.”

· Also add a voucher type for voucher type for the “Customer Notes – Interest”.

NAM Setup

· Add a new Name ID Type for “Notes Payable Customers.” Try to make this code so it is sorted to the end of the range of Name ID Type values, as it will be used for reporting purposes out of the ACR subsidiary.

· Add a new Name ID for the customer to whom you will be “selling” the Demand Note or C of I.
In the relationship setup, set the “Collection Point” name ID to be the customer’s original Name ID, set the “Bill to Remit to” name ID to be the customer’s original Name ID.
Also assign the above-mentioned Name ID Type, invoice term code, and the appropriate Finance Charge Table to the customer. Please note that this is the Name ID for which the 1099-INT will print.

LDG Setup

· Add a G/L account number for “Customer Notes Payable.” This account would reside in the liability section of the balance sheet. If you prefer, you can add a separate G/L account number for each type of note you will be “selling.”

· Add a G/L account number for the interest paid on the customer notes. This account would reside in the operating expense section of the income statement.

· Add a G/L account number for “Customer Notes Clearing.” This account would reside in the equity section of the balance sheet.

SJI Setup

· For the new product category added earlier, set the Accounts Receivable system account for the SL code to credit the “Customer Notes Clearing” account. Set the AR code for the above newly added Name ID type to affect the “Customer Notes Payable” G/L account. Also set the Interest Credit for this Name ID type to affect the newly created account for “interest paid on Customer Notes.”

SYS Setup

· Add a new location code for each type of Customer Note that you will be selling. For instance, if you are using Demand Notes, add a location code of “NDN.” If you will also be selling 3-year C of I’s, add a location code of “N3Y.” It is important that these notes are alpha so that they are out of the normal reporting range and can be excluded from an ACR statement run and from reporting in Accounts Receivable.

Use of the Procedures

Receiving Funds

· When the customer brings money to deposit in your Demand Note Program, simply invoice the service item created above to the customer and receive payment for the sale during the invoicing process. This will debit Bank and credit “Customer Note Clearing.” This transaction is done in the normal default location and utilizes the customer’s normal name ID.

· If this is the 1^st time you have done customer note business with this individual, you will need to add a Name ID for their customer note business. See NAM Setup above for additional information. Once the name has been added, change your default location code to the appropriate location for the type of note that was sold to the customer.

· Create a manual credit memo to this customer’s “Note” Name ID. The amount of the credit memo will be exactly the amount they gave you on deposit. The G/L distribution to this manual ACR invoice will be the “Customer Note Clearing” account. It is important that you use the Customer Note invoice type previously outlined in these procedures. This transaction will affect the ledger as a debit to “Customer Note Clearing” and a credit to “Customer Notes Payable.”

Monthly Procedures

· Aging and Finance Charges are now done differently. It is crucial that the interest credits are calculated for the customer note locations first and added to those accounts. When doing this, the operator will override the finance charge table and have the system use the correct finance charge table for that location. Remember that a separate finance charge table (interest rate table) was created for each note type as was a separate location code. When calculating the interest credits, select only invoices in this location and override the finance charge table. It is also important to note that the general finance charge table (interest rate table) is used for all customers. In addition, for those customers who deposited money during the month, a separate finance charge run using the Finance Charge Table for new deposits must be done. This finance charge table is designed to consider the number of days the money was on deposit in the interest calculation.

· After all the Customer Note locations have had interest credits calculated, the user can calculate the other finance charges as normal (however, it is important that the “Customer Note” locations be excluded from this aging and finance charge run). The user must perform an additional “general” aging, leaving location fields blank without updating finance charges before producing ACR statements.

· Accounts Receivable statements are run as normal, except that the “Customer Note” locations should be excluded from that statement run. As for G/L reconciliation reports, the user can select reports based upon the location codes to tie out the ledger. All invoices and credit memos in the “customer note” locations should be tied to the “Customer Note Payable” G/L account. All other subsidiary balances should be tied to the normal trade receivable balances.

Disbursing Funds

· To pay funds back to a customer, all outstanding principal and interest invoices must be transferred to accounts payable. Once these have been transferred, the user will run the Aging & Finance Charges function without updating the Interest Credit. When doing so, the single customer will be selected and the finance charge table for new and retired notes will be used. This report will indicate the amount of interest payable on the balance. Once that amount has been determined, a Manual Interest Credit invoice is entered into the system under the name id for the note account. Once entered, this outstanding credit invoice is also transferred to accounts payable.

· For mid-month deposits of additional monies, nothing additional is required. Since the customer had a credit balance coming into the aging period and the normal interest credit table calculates on an average daily balance, the change in balance mid-month will be accounted for.

· For mid-month withdrawals of one of many existing notes, simply transfer the single note to be paid to accounts payable. Since it is not possible to calculate the interest amount on a single note, it is suggested that only the original principal amount be paid, rather than the principal plus the interest on that note[1].

· Once all principal credit invoices and any or all applicable interest earned credit invoices have been transferred to Accounts Payable, normal accounts payable disbursement will relieve the balance in accounts payable. Again, it is imperative that, when transferring invoices from Accounts Receivable to Accounts Payable, close attention is paid to the voucher type associated with the voucher being created at the time of transfer. This is the only reporting mechanism available for 1099-INT filing. Use a voucher type that is assigned to a 1099-INT document.

[1] If a one-to-one relationship of interest earned against a particular note is desired, a separate Name ID will be required for each note. This is neither reasonable nor advisable.