The remittance advice is a form of a turnaround document, as described in Chapter 2. Its importance is most apparent in firms that process large volumes of cash receipts daily. For example, processing a check from John Smith with no supporting details would require a time-consuming and costly search through perhaps thousands of records to find the correct John Smith. This task is greatly simplified when the customer provides necessary account number and posting information. Because of the possibility of transcription errors and omissions, however, sellers do not rely on their customers to provide this information directly on their checks. Errors are avoided and operational efficiency is greatly improved when using remittance advice.
Mail room personnel route the checks and remittance advice to an administrative clerk who endorses the checks ‘‘For Deposit Only’’ and reconciles the amount on each remittance advice with the corresponding check. The clerk then records each check on a form called a remittance list (or cash precisest), where all cash received is logged. In this example, the clerk prepares three copies of the remittance list. The original copy is sent with the checks to the record and deposit checks function. The second copy goes with the remittance advice to the update AR function. The third goes to a reconciliation task.