Final answer:
The sales order, billing, and accounts receivable (AR) departments have distinct functions within a company's financial cycle. Sales order processes customer orders, billing generates invoices, and AR manages payments. Segregation of duties ensures accuracy and prevents potential conflicts of interest or fraud, which is why the sales order and AR cannot prepare bills.
Step-by-step explanation:
The distinction between the sales order, billing, and accounts receivable (AR) departments lies in their respective responsibilities within a company's sales and revenue cycle. The sales order department is responsible for processing customer orders, ensuring that the goods or services requested are available and that customer details are accurately recorded. They prepare the sales order documents which are then passed to the billing department.
The billing department takes the completed sales orders and generates invoices for the goods or services provided. This step involves verifying order details, determining appropriate pricing, including any discounts or promotions, and preparing the bill that will be sent to the customer. The separation of this process from the sales order department helps ensure accuracy and prevents potential conflicts of interest or fraud.
Finally, the accounts receivable (AR) department is responsible for managing the organization's incoming payments. They track bill payments, follow up on overdue accounts, and are in charge of updating the financial records once payments are received. Again, the separation of this department from the billing process helps maintain checks and balances within the organization.
The sales order or AR departments can't prepare bills because it could lead to errors, fraud, or bias in the financial records. Each of these departments plays a specific role, and segregation of duties ensures that no single department controls all aspects of the transaction process, which is crucial for internal control and compliance with accounting standards.