Aged Accounts Receivable

An aged accounts receivable schedule sometimes referred to as an aged debtors report, is used as a management tool to monitor the age of the outstanding receivables from customer sales invoices, allowing early action to be taken to collect the overdue amounts. In addition, it can be used as the basis for estimating the the allowance for doubtful debts.

The report is produced by analyzing customer sales invoices into several different age classifications based on the number of days the invoice is past its due date. For example, if the invoice is unpaid 27 days after its due date it would be placed in the 0-30 days classification column, or if the invoice was unpaid 55 days after its due date it would be placed in the 31-60 days column.

On the report, a sub-total is drawn showing the aged accounts receivable for each customer, and a total line shows the aged accounts receivable for the business as a whole. Finally, a line is added to show what percentage of the total outstanding accounts receivable is represented by each age classification. For instance, in the example aged accounts receivable report below, the amount outstanding between 31-60 days is 6,100, and this represents 6,100/18,000 or 34% of the total aged accounts receivable.

Aged Accounts Receivable Schedule
Customer Amount 0 – 30 31 – 60 61 – 90 > 90
Invoice 1 3,200 3,200
Invoice 2 6,100 6,100
Customer A 9,300 6,100 3,200
Invoice 3 1,200 1,200
Invoice 4 2,700 2,700
Customer B 3,900 2,700 1,200
Invoice 5 2,800 2,800
Invoice 6 2,000 2,000
Customer C 4,800 2,000 2,800
Total 18,000 2,000 6,100 5,900 4,000
Percentage 100% 11% 34% 33% 22%

Aged Accounts Receivable and the Allowance for Doubtful Debts

The aged accounts receivable report can be used to estimate the allowance for doubtful debts based on past experience of bad debts. This method is known as the aging of accounts receivable method, and provides an alternative to basing the allowance on a percentage of the revenue for the accounting period.

For example, if from past experience, the business has the following bad debt history:

Bad Debt History
Ageing % Bad debts
0-30 days 2%
31-60 days 5%
61-90 days 10%
> 90 days 30%

Then based on this information and the aged accounts receivable report above, the business can estimate the allowance for doubtful debts needed by applying the relevant percentage to each aged accounts receivable column in the report.

Aging of Accounts Receivable Method
Ageing % Bad debts Aged balance Allowance
0-30 days 2% 2,000 40
31-60 days 5% 6,100 305
61-90 days 10% 5,900 590
> 90 days 30% 4,000 1,200
Total 18,000 2,135

Based on this information the aging of accounts receivable method shows that the allowance for doubtful debts should be 2,135.

Aged Accounts Receivable November 6th, 2016Team

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