The accounts receivable aging

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 tool, 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. A typical aging report lists invoices in 30-day "buckets," where the columns contain the following information:

  • The left-most column contains all invoices that are 30 days old or less

  • The next column contains invoices that are 31-60 days old

  • The next column contains invoices that are 61-90 days old

  • The final column contains all older invoices

The report is sorted by customer name, with all invoices for each customer itemized directly below the customer name, usually sorted by either invoice number or invoice date. A sample report follows, though without the individual invoice detail that is usually found in such a report:

Customer Name

Total A/R
Abercrombie $15,000 $10,000 $5,000    
Bufford Inc. 29,000   20,000 9,000  
Chesterton Co. 83,000 47,000 21,000 12,000 3,000
Denver Brothers 8,000       8,000
Totals $135,000 $57,000 $46,000 $21,000 $11,000

If the report is generated by an accounting software system (which is usually the case), then you can usually reconfigure the report for different date ranges. For example, if payment terms are net 15 days, then the date range in the left-most column should only be for the first 15 days. This drops 16-day old invoices into the second column, which highlights that they are now overdue for payment.

The report primarily contains invoices, but it may also contain credit memos that have not been used by customers, or which have not yet been matched against an unpaid invoice.

The aging report is also used as a tool for estimating potential bad debts, which are then used to revise the allowance for doubtful accounts. The usual method for doing so is to derive the historical percentage of invoice dollar amounts in each date range that usually become a bad debt, and apply these percentages to the column totals in the most recent aging report.

For example, a company historically experiences 1% bad debts on items in its 30 day time bucket, 5% bad debts in its 31-60 day time bucket, and 15% bad debts in its 61+ day time bucket. Its most recent accounts receivable aging report contains $500,000 in the 30 day time bucket, $200,000 in the 31-60 day time bucket, and $50,000 in the 61+ day time bucket. Based on this information, the company should have an allowance for doubtful accounts of $22,500, which is calculated as:

($500,000 x 1%) + ($200,000 x 5%) + ($50,000 x 15%) = $22,500

An additional use of the aging report is by the credit department, which can view the current payment status of any outstanding invoices to see if customer credit limits should be changed. This is not an ideal use of the report, since the credit department should also review invoices that have already been paid in the recent past. Nonetheless, the report does give a good indication of the near-term financial situation of customers.

Finally, the company's auditors may use the report to select invoices for which they want to issue confirmations as part of their year-end audit activities.

Similar Terms

An accounts receivable aging is also known as a schedule of accounts receivable. A variation is that this schedule may contain a simple listing of receivables by customer, rather than breaking them down further by age.

Related Courses

Credit and Collection Guidebook  
How to Audit Receivables 
New Controller Guidebook