Accounts Receivable Aging Report: Free PDF Example and Template

An account that is 90 days overdue is more likely to be unpaid than an account that is 30 days past due. By categorizing the receivables in this manner, businesses can quickly identify overdue accounts, which may require more aggressive collection efforts or potentially be written off as bad debts. The aging method also helps businesses determine the allowance for doubtful accounts, which is an estimate of the amount of receivables that may not be collectible. This allowance is used to record a bad debt expense and reduce the carrying value of accounts receivable on the balance sheet.

For example, in these firms, the percentage of net sales method is typically used to prepare monthly and quarterly statements, whereas the aging method is used to make the final adjustment at year-end. The aging report is generated by accounting software to structure the report for a different date range. The report contains invoices and credit memos that customers have not used.

How to Write the A/R Aging Report

An aging report groups outstanding invoices based on the age of the invoices. The report provides the management team an overall picture of the company’s receivables portfolio. The Accounts Receivable Aging Report is a snapshot aging method accounting into the health of your business’s outstanding accounts. By categorizing receivables by the length of time they are overdue, it allows you to see where your money is tied up, how long it’s been there, and, most importantly, why.

BWW estimates 15% of its overall accounts receivable will result in bad debt. For example, when companies account for bad debt expenses in their financial statements, they will use an accrual-based method; however, they are required to use the direct write-off method on their income tax returns. This variance in treatment addresses taxpayers’ potential to manipulate when a bad debt is recognized. Under the Aging of Accounts Receivable Method, the estimate is updated at the end of each accounting period so it is based on the most recent Accounts Receivable Aging Report.

What is the Journal Entry if the Balance in Allowance for Doubtful Accounts is a Credit?

Auditors examine the aging schedule to verify that receivables are correctly categorized and that the company’s method for estimating uncollectible accounts is reasonable. This examination includes a review of subsequent cash receipts, which can validate the collectibility of receivables and the effectiveness of the company’s credit and collection policies. This approach not only helps in identifying potential bad debts but also plays a significant role in maintaining a healthy cash flow. By providing insights into payment patterns and customer creditworthiness, it aids businesses in making informed decisions about their credit policies and collection processes. Many accounting software packages help in preparing the aging schedule automatically.