Question

Why do many companies choose to set up Aging Schedules for their Accounts Receivable(s)?

Answer 1

Accounts Receivable are the amounts owed to the company by its customers. Eg- Debtors, Inventory etc. It is an asset that provides value to the business and can be converted into cash very easily. Now accounts receivable arise when a business provides goods and services to its customers on credit. Hence it is important for a business to create an Aging schedule to know how much accounts receivable have been collected and also track the doubtful debts.

Aging is the process of categorizing all the amounts owed by all our customers, including the length of time the amounts have been outstanding and unpaid.  

Setting up of Aging schedules is important because the longer a debt is owed, the more are the chances of not receiving it and therefore becoming a bad debt.

So it is important to know which customers are paying their bills in due time and which customers are less reliable, thus it helps companies in adjusting their credit policies and avoid cash problems.

To prepare an accounts receivable aging report, you need to have the customer’s name, outstanding balance amount, and aging schedules.

An AR aging report can be broken down into the following categories:

• Customer name
• Total balance for each customer
• Current amount
• Days past due (e.g., 1 – 30 days)
• Totals for each column

This helps the business to know who owes the most amount of money and this in turn can help them to collect their dues efficiently.