Question

What is an AR aging report? What is its purpose?

What is an AP aging report? What is its purpose?

Answer 1

Solution:

Account Receivable (AR) Aging Report:

This is a report which categories the company accounts receivable based on the length of time an invoice has been outstanding.

Purposes of AR Aging Reports are as follows:

1. Company track and contact debtors at regular intervals as per the aging report communicate the message to the debtor that the company is on top of your billing and collection process.

2.  This helps management to keep track of the account receivable and amount expected to be received in the future.

3. Evaluate payment terms with suppliers and make necessary changes in cases that remain outstanding for longer than expected period.

4. The company can decide the quantum of Account Receivable allowance or provisions to be made.

5.  Management uses this report to ascertain the financial health of the company.

Account Payable Ageing Report:

This is a report which categories the company accounts payable based on the length of time an invoice has been outstanding.

Purposes of AR Reports are as follows:

1. Help to identify the bills or payment due in the near future or which bills payable are overdue for payment.

2. This helps the management to manage cash flow in advance to make the payment on time.

3.   AP Report can be used to reconcile your accounts payable to your general ledger.

4. In case the company faces a tight liquidity situation then this report helps to rank the payment to be made urgent and which payments can be delayed.

5. This report also helps the management to assess the financial health of the company with respect to the liability owed by the company and their duration of payment.