Definition
A Receivables Aging Schedule is an accounting report used by companies to categorize their accounts receivable according to the length of time an invoice has been outstanding. This schedule provides insights into the payment status of a company’s receivables and helps in assessing the creditworthiness of its customers.
The schedule typically categorizes receivables into different age groups, such as:
- Current (0-30 days)
- 31-60 days
- 61-90 days
- Over 90 days
By analyzing this report, businesses can identify potential credit issues and prioritize their collection efforts.
Examples
Example 1: Small Business A
Small Business A creates a receivables aging schedule to monitor the outstanding invoices.
| Customer | Current | 31-60 Days | 61-90 Days | > 90 Days | Total Receivable |
|---|---|---|---|---|---|
| Customer X | $5,000 | $0 | $0 | $0 | $5,000 |
| Customer Y | $2,000 | $1,000 | $0 | $0 | $3,000 |
| Customer Z | $0 | $500 | $1,500 | $0 | $2,000 |
| Customer W | $0 | $0 | $0 | $4,000 | $4,000 |
| Total | $7,000 | $1,500 | $1,500 | $4,000 | $14,000 |
Example 2: Large Enterprise B
For a larger company, the schedule might look more complex and can include additional columns for various payment terms and interest calculations.
| Customer | Current | 31-60 Days | 61-90 Days | > 90 Days | Over 120 Days | Total Receivable |
|---|---|---|---|---|---|---|
| Customer A | $50,000 | $20,000 | $10,000 | $0 | $0 | $80,000 |
| Customer B | $30,000 | $15,000 | $0 | $5,000 | $0 | $50,000 |
| Customer C | $10,000 | $0 | $5,000 | $0 | $3,000 | $18,000 |
| Total | $90,000 | $35,000 | $15,000 | $5,000 | $3,000 | $148,000 |
Frequently Asked Questions (FAQs)
What is the purpose of a receivables aging schedule?
The primary purpose of a receivables aging schedule is to identify overdue accounts and improve the collection process by prioritizing follow-ups for overdue invoices.
How often should a receivables aging schedule be prepared?
Typically, a receivables aging schedule should be prepared at least monthly. However, businesses may choose to update it more frequently depending on their specific needs and credit management policies.
What is considered an acceptable aging period for receivables?
This depends on the industry and company policy. Generally, receivables aged over 90 days are considered high-risk and need immediate attention.
How does a receivables aging schedule affect cash flow management?
By regularly monitoring the aging of receivables, businesses can better manage their cash flow and plan for potential cash shortfalls due to delayed customer payments.
What actions can be taken based on the receivables aging schedule?
Actions can include sending reminder notices, making collection calls, assessing late fees, and in some cases, turning over the accounts to a collection agency.
Related Terms
- Accounts Receivable (AR): Represents the money owed to a business by its customers from sales made on credit.
- Credit Management: The process of granting credit, managing customer credit accounts, and collecting payments.
- Collections: The actions taken by a business to collect overdue invoices from customers.
- Bad Debt: Amounts considered uncollectible, often written off after all collection efforts have failed.
Online References
- Investopedia - Accounts Receivable (AR)
- AccountingTools - Receivables Aging
- Wikipedia - Receivables Aging
Suggested Books for Further Studies
- “Financial Accounting: The Impact on Decision Makers” by Gary A. Porter and Curtis L. Norton
- “Principles of Accounting” by Belverd E. Needles and Marian Powers
- “Essentials of Accounts Receivable Management” by Steven M. Bragg
Fundamentals of Receivables Aging Schedule: Accounting Basics Quiz
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