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Aging schedule

Aging schedule shows a prepared list of accounts receivable that has remained uncollected from the dates of issuing the invoices. It is used to determine potential bad debts by making the best estimate of the number of debtors who will never pay their accounts so as to obtain as accurate a figure as possible for good debtors which are accounts receivable that are collectible.

It is reasonable to assume that the longer a debt is owed the more likely it is that it will become a bad debt. By preparing an aging schedule, a provision for bad debts can then be made which is an estimate of the amount of the debtors at the year end that are likely to finish up as bad debts. Maintaining regular check over accounts receivable enables the management of the company to minimize the occurrence of bad debts and provide timely collection of accounts receivable.

The preparation of periodic aging schedules provides for proper management of accounts receivable. Failure to maintain periodic aging schedules may cause the company to be constantly strapped for cash. An aging schedule groups accounts receivable into periods that the debts are outstanding such as from 1 – 30 days, 31 – 60 days, 61 – 90, 91 - 120 days, and longer than 120 days.

The aging schedule is prepared from the accounts receivable subsidiary ledger, also known as the sales ledger where each credit sale to each customer is recorded.  Much information can be gathered from an aging schedule such as which debtors who are paying on time and which are not, which debts are overdue and how far they are overdue. This information can be used as guidelines to establish effective credit control.

Aging schedule may also be prepared for other accounts such as inventory, accounts payable and fixed assets.

Some companies use past records of debt collection or non-collection as a basis for preparing an aging schedule as follow:


Following are aging schedules for debts:

1. Shows debts collectively

Age of debts Amount Doubtful debts Provision

$ % $
Less than one month 9,500 1 950
1 month to 2 months 8,500 3 255
2 months to 3 months 5,800 5 290
3 months to 6 months 2,300 10 230
6 months to 1 year 1,100 25 275




Totals
27,200
2,000





Period of
debt
(days)
Accounts
Receivable
($)
Estimated
doubtful
(%)
Provision for
bad debts
($)
01 - 30
88,600
2
1,772
31 - 60
21,500 5
1,075
61 - 90
10,400 10
1,040
90+ 
18,300 30
5,490




Totals
138,800
9,377








The above table shows the accounts receivable balances are multiplied by the estimated percentage of debts that are unlikely to be collected, and the total is the estimated bad debts.


2. Shows debts individually

Debtor Balance Age (days) of debts
1 to 30 31 to 60 61 to 90 90+

$
$
$
$
$
A Airco 14,200 10,100 4,100

B Baboo 14,100 12,900
1,200
C Cocoo 15,100 7,600
3,000
4,500
D Dow 16,000 11,500 4,500

E Emotio 10,900 6,400

1,000 3,500
F Forgotte 17,100 13,300 2,500 1,300
G Gibbo 12,300 8,700

1,100 2,500
H Heave 10,000 8,500

1,500
Others 29,100
9,600 7,400 4,300 7,800






Total 138,800 88,600 21,500 10,400 18,300
%
2 5 10 30
Doubtful doubts 9,377
1,772
1,075 1,040 5,490


Debtor Balance Age (days) of debts
1 to 30 31 to 60 61 to 90 91 to 120 Over 120

$
$
$
$
$
$
A Airco 5,000 3,000 2,000


B Baboo 4,000 2,500
1,500

C Cocoo 4,000
2,000
2,000
D Dow 4,000 1,500 2,500


E Emotio 2,000

1,000 1,000
F Forgotte 6,000 3,000 1,500 1,500

G Gibbo 2,000

1,500 500
H Heave 2,500

1,500
1,000
Others 27,900
9,000 6,400 5,000 4,500 3,000







Total 57,400 19,000 14,400 12,000 8,000 4,000
%
2 5 10 15 25
Doubtful doubts 4,500 380 720 1,200 1,200 1,000



Last Updated (Sunday, 31 October 2010 20:42)