5.7: Accounts Receivable Aging Schedule

An aging schedule is an internal, managerial, and confidential document, which shows, account by account, what funds are due and from whom, and whether they are due timely or pa st due. It is a necessary management tool. It would provide the analyst with much more than s/he may otherwise know by alternatively calculating Days Sales Outstanding. The schedule might look somewhat like t he following.

By examining this schedule, the analyst may uncover some interesting findings. For instance:

1. 1ACP/ DSO may be higher than the company’s sales terms due, possibly, to one very large account skewing the average. It may also be greater due to the company’s decision to enter a new geographical or product market, knowing in advance that such entry will slow down its collections, but expecting that the added profits will make the expansion worthwhile.
2. 2The analyst may see how many accounts are current and how many should be written off – analytically – by the analyst. (Remember: this is not accounting, so a real “ write-off ” would be recorded by the accountant .)
3. 3This schedule does not tell the reader anything about the profitability of the accounts (but neither does the ACP ) . It could very well be, for instance, that account #1, which apparently pays well , is also purchasing very low margin product s . While not necessarily of great importance to the Accounts R eceivable manager, the marketing manager may be very interested in profitability.
4. 4Overall, it appears that the company has $ 425/ $ 700, or 60.7% of its receivables that are “current , ” i.e., not past due – assuming 30-days collection terms .
5. 5The Aging Schedule implies a certain ACP . In order to calculate the ACP , it is necessary to know the Credit Sales figure, which is publicly available from the company’s Income Statement.