Question

What is the main use of computerized age analysis of trade receivables?

Answer 1

Trade receivables are amounts billed by a business to its customers when it delivers goods or services to them in the ordinary course of business. These billings are typically documented on formal invoices, which are summarized in an accounts receivable aging report. This report is commonly used by the collections staff to collect overdue payments from customers. In the general ledger, trade receivables are recorded in a separate accounts receivable account, and are classified as current assets on the balance sheet if you expect to receive payment from customers within one year.

To record a trade receivable, the accounting software creates a debit to the accounts receivable account and a credit to the sales account when you complete an invoice. When the customer eventually pays the invoice, the accounting software records the cash receipt transaction with a debit to the cash account and a credit to the accounts receivable account.

Trade receivables vary from non trade receivables in that non trade receivables are for amounts owed to the company that fall outside of the normal course of business, such as employee advances or insurance reimbursements. Also, most or all of the transactions passing through the main accounts receivable account are generated by the accounting system, as you create customer invoices and credit memos, whereas the transactions recording non trade receivables nearly always involve journal entries.

An accounts receivable aging is a report that lists unpaid customer invoices and unused credit memos by date ranges.The aging report is the primary tool used by collections personnel to determine which invoices are overdue for payment.Given its use as a collection tools,the report may be configured to also contain contact information for each customer.The report is also used by management,to determine the effectiveness of the credit and collection functions.

An accounts receivable aging report is an important report to review at least monthly, or more often, to be sure your customers are paying you.