What is accounts receivable aging?

Definition

Accounts receivable aging is a report that splits open customer bills into time buckets by how long they have been unpaid. On the books, this is a report, not a journal and not a ledger account.

A florist printing open cafe invoices in current, 30, 60, and 90-day buckets uses it to see which bills are still fresh and which have gone stale. The report does not change the receivable total; it only sorts that total by age.

The dollars on the report should tie to accounts receivable on the Balance Sheet. Days sales outstanding collapses the same bills into one average; this page keeps the buckets.

Where it shows up

Balance Sheet: Related to the open accounts receivable the report splits by age.

P&L: Related to nothing extra unless a later write-off hits expense.

Cash flow: Related to which of those buckets still have not collected.

See also: Accounts Receivable · Days Sales Outstanding · Collections

When you look at your Balance Sheet, you will not see a line named for this report. You will see the receivable it splits, sitting in current assets near cash.

When the 60- and 90-day buckets are large, cash is slower to arrive than the terms on the bills. When almost everything sits in current, customers are paying inside the window.

The Income Statement does not print the aging. A later write-off can hit bad debt expense, but the report itself is not an expense.

On the Statement of Cash Flows, the older buckets are the cash that has not arrived yet. A cash flow forecast often starts from those same open bills.

How it works

A typical path starts from every unpaid customer bill. The report places each one in a bucket by invoice date, or by due date, depending on how the shop set it up.

Current usually means not yet due, or due inside 30 days. The 30, 60, and 90 columns then hold bills that have sat longer.

Stay on those buckets. Do not treat the receivable total, the average collection days, or a reminder letter as the aging itself.

The columns should add up to the accounts receivable balance. If they do not, a bill is missing, a credit is sitting in the wrong place, or the report is dated differently than the Balance Sheet.

Older buckets are where collection work starts. They are also the bills that feed the allowance for doubtful accounts, because a 90-day cafe invoice is less likely to collect than a current one.

Do not post a journal that says "aging." The report only sorts bills that are already on the books.

When a cafe pays, that bill leaves the report. The receivable falls, cash rises, and the bucket that held the bill goes down.

Example

Bloom & Batch prints its open cafe invoices. Three bills are on the page: $400 current, $280 at 32 days, and $120 at 75 days.

The report total is $800. That $800 should match accounts receivable on the Balance Sheet.

The current $400 is still inside terms. The $280 is one reminder past due; the $120 has sat into the 60-day bucket and is the first call of the week.

If the cafe pays the $280, that line drops off. The report then shows $400 current and $120 at 75 days, totaling $520.

If the $120 is later judged uncollectible, a write-off removes it from the receivable and the aging. The report does not make that entry; a separate journal does.

Common mix-ups

Accounts receivable aging is not the receivable itself. The receivable is the asset; this page is the report that splits that asset by how old the bills are.

Accounts receivable aging is not days sales outstanding. Days sales outstanding is one average; this page keeps the buckets so you can see which bills are late.

Accounts receivable aging is not collections. Collections is the follow-up work; this page is the list that tells you which bills need that work.

Related terms

• Accounts Receivable: Money customers owe the business for goods or services already delivered.
• Days Sales Outstanding: The average number of days it takes to collect an invoice.
• Collections: The process of following up on unpaid customer invoices.
• Dunning: The sequence of reminder notices sent as an invoice ages past due.
• Allowance For Doubtful Accounts: A contra-asset reserve estimating the share of receivables that will not be collected.
• Invoice: The document that bills a customer and creates a receivable.
• Write-Off: Removing a balance from the books when it will not be collected or paid.
• Cash Flow Forecast: A forward projection of cash receipts and payments.
• Subledger: A detailed ledger behind a single control account, such as receivables or fixed assets.