{"id":3554,"date":"2020-10-20T22:18:02","date_gmt":"2020-10-20T22:18:02","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/?post_type=chapter&#038;p=3554"},"modified":"2020-11-30T20:49:14","modified_gmt":"2020-11-30T20:49:14","slug":"accounts-receivable-aging-analysis","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/chapter\/accounts-receivable-aging-analysis\/","title":{"raw":"Accounts Receivable Aging Analysis","rendered":"Accounts Receivable Aging Analysis"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">Prepare an accounts receivable aging analysis<\/li>\r\n<\/ul>\r\n<\/div>\r\nLet\u2019s go back to Larkin, Co.\u2019s subsidiary ledger for last year, but let\u2019s add some details:\r\n<table class=\"fin-table acctstatement\">\r\n<thead>\r\n<tr>\r\n<th rowspan=\"2\" scope=\"col\">Customer<\/th>\r\n<th rowspan=\"2\" scope=\"col\">Amount Owed<\/th>\r\n<th colspan=\"4\" scope=\"col\">Age of Invoice, in days<\/th>\r\n<\/tr>\r\n<tr>\r\n<th>0-30<\/th>\r\n<th>31-60<\/th>\r\n<th>61-90<\/th>\r\n<th>90+<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>A<\/td>\r\n<td class=\"r\">57,500<\/td>\r\n<td class=\"r\">40,000<\/td>\r\n<td class=\"r\">17,500<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>B<\/td>\r\n<td class=\"r\">22,000<\/td>\r\n<td class=\"r\">22,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>C<\/td>\r\n<td class=\"r\">74,500<\/td>\r\n<td class=\"r\">14,500<\/td>\r\n<td class=\"r\">50,000<\/td>\r\n<td class=\"r\">10,000<\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>D<\/td>\r\n<td class=\"r\">8,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">8,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>E<\/td>\r\n<td class=\"r\">12,500<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">12,500<\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>F<\/td>\r\n<td class=\"r\">25,000<\/td>\r\n<td class=\"r\">25,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>G<\/td>\r\n<td class=\"r\">50,500<\/td>\r\n<td class=\"r\">1,500<\/td>\r\n<td class=\"r\">30,000<\/td>\r\n<td class=\"r\">17,000<\/td>\r\n<td class=\"r\">2,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>250,000<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>103,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>97,500<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>39,500<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>10,000<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nLet\u2019s also assume that Larkin Co. extends normal credit terms of net 30, meaning the invoice is due within 30 days. Each customer may have several outstanding invoices. Let\u2019s say this schedule was prepared on 12\/31 and Customer A had two outstanding invoices: a bill for $40,000 dated December 15, making it not overdue, and a bill for $17,500 dated November 30, making it just slightly (one day) overdue.\r\n\r\nSometimes this schedule is prepared using \u201cdays past due.\u201d Different companies do it according to their own internal needs. In any case, this is an accounts receivable aging schedule. It\u2019s that simple and is a canned report in most, if not all, accounting packages. We can use this report to more precisely calculate the allowance for doubtful accounts and therefore the net realizable value of accounts receivable.\r\n\r\nFirst, based on a historical analysis of collectibility, we assign a probability of collection to each category. Obviously, the older an account is, the less likely we will be able to collect it.\r\n\r\nLet\u2019s say over time we have learned this:\r\n<div align=\"left\">\r\n<table>\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\"># of days old<\/th>\r\n<th scope=\"col\">Probability of collecting<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>0-30<\/td>\r\n<td>99%<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>31-60<\/td>\r\n<td>95%<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>61-90<\/td>\r\n<td>85%<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>90+<\/td>\r\n<td>5%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nIn other words, our experience is that we collect 99% of the current billings, but that likelihood drops to 95% if they go past the due date, and drops again to only 85% if they haven\u2019t paid by day 61 (more than 30 days past due). After 90 days, we don\u2019t have much hope, only a 5% probability of getting our money, which means that a few people who don\u2019t pay on time still eventually pay, but not many.\r\n\r\nWe\u2019re accountants, but we also have to be statisticians. We apply the probability of collecting the accounts to the aging analysis like this:\r\n<table class=\"fin-table acctstatement\">\r\n<thead>\r\n<tr>\r\n<th rowspan=\"2\" scope=\"col\">Customer<\/th>\r\n<th rowspan=\"2\" scope=\"col\">Amount Owed<\/th>\r\n<th colspan=\"4\" scope=\"col\">Age of Invoice, in days<\/th>\r\n<\/tr>\r\n<tr>\r\n<th>0-30<\/th>\r\n<th>31-60<\/th>\r\n<th>61-90<\/th>\r\n<th>90+<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>A<\/td>\r\n<td class=\"r\">57,500<\/td>\r\n<td class=\"r\">40,000<\/td>\r\n<td class=\"r\">17,500<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>B<\/td>\r\n<td class=\"r\">22,000<\/td>\r\n<td class=\"r\">22,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>C<\/td>\r\n<td class=\"r\">74,500<\/td>\r\n<td class=\"r\">14,500<\/td>\r\n<td class=\"r\">50,000<\/td>\r\n<td class=\"r\">10,000<\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>D<\/td>\r\n<td class=\"r\">8,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">8,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>E<\/td>\r\n<td class=\"r\">12,500<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">12,500<\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>F<\/td>\r\n<td class=\"r\">25,000<\/td>\r\n<td class=\"r\">25,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>G<\/td>\r\n<td class=\"r\">50,500<\/td>\r\n<td class=\"r\">1,500<\/td>\r\n<td class=\"r\">30,000<\/td>\r\n<td class=\"r\">17,000<\/td>\r\n<td class=\"r\">2,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>250,000<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>103,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>97,500<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>39,500<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">99.0%<\/td>\r\n<td class=\"r\">95.0%<\/td>\r\n<td class=\"r\">85.0%<\/td>\r\n<td class=\"r\">5.0%<\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">NRV<\/th>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>228,670<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>101,970<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>92,625<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>33,575<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>500<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nAccording to this calculation, the net realizable value, which is the cash value, or the amount we expect to ultimately collect, is $228,670 against gross receivables of $250,000, which means the balance of the contra-asset account we set up called Allowance for Doubtful Accounts should be $21,330.\r\n\r\nYou can then prepare the adjusting journal entry.\r\n\r\nSay the balance in the allowance account is currently a credit of $10,000, which would be the combination of all the prior entries to that account, commonly prior period-end adjustments and write-offs. You would calculate the adjusting journal entry like this:\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10214424\/Screen-Shot-2020-11-10-at-1.41.24-PM.png\"><img class=\"alignnone wp-image-5475\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10214424\/Screen-Shot-2020-11-10-at-1.41.24-PM-300x262.png\" alt=\"A T account for Allowance for Doubtful Accounts. There is a credit balance at the top of 10,000 dollars, as well as an adjusting journal entry on the credit side of 11,330 dollars. The total credit balance is 21,330 dollars.\" width=\"293\" height=\"256\" \/><\/a>\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10215407\/Screen-Shot-2020-11-10-at-1.41.28-PM.png\"><img class=\"alignnone size-medium wp-image-5476\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10215407\/Screen-Shot-2020-11-10-at-1.41.28-PM-300x237.png\" alt=\"A T account for Bad Debt Expense. On the debit side is an adjusting journal entry for 11,330 dollars.\" width=\"300\" height=\"237\" \/><\/a>\r\n\r\nLet\u2019s say the balance before your adjustment was a debit of $2,000 because you had written off more accounts during the year than you had allowance for. You would calculate the adjustment like this:\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10220432\/Screen-Shot-2020-11-10-at-1.41.34-PM.png\"><img class=\"alignnone size-medium wp-image-5477\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10220432\/Screen-Shot-2020-11-10-at-1.41.34-PM-300x229.png\" alt=\"A T account for allowance for doubtful accounts. At the top is a debit balance of 2,000 dollars. There is also a credit adjusting journal entry of 23,330 dollars. The total credit balance is 21,330 dollars.\" width=\"300\" height=\"229\" \/><\/a>\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10220820\/Screen-Shot-2020-11-10-at-1.41.40-PM.png\"><img class=\"alignnone size-medium wp-image-5478\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10220820\/Screen-Shot-2020-11-10-at-1.41.40-PM-300x239.png\" alt=\"A T account for Bad Debt Expense. There is a adjusting journal entry on the debit side for 23,330 dollars.\" width=\"300\" height=\"239\" \/><\/a>\r\n\r\nJust to review: There is no entry to Accounts Receivable because it matches the subsidiary ledger that includes all the accounts, and we are making an allowance for future accounts that will go bad, but we don\u2019t yet know which. When we actually write off an account some time in the future, we will reduce Accounts Receivable (with a credit entry) and the AR subsidiary ledger, and we will also reduce the Allowance account (with a debit).\r\n\r\nSome companies prepare the aging analysis like this:\r\n<table class=\"fin-table acctstatement\">\r\n<thead>\r\n<tr>\r\n<th rowspan=\"2\" scope=\"col\">Customer<\/th>\r\n<th rowspan=\"2\" scope=\"col\">Amount Owed<\/th>\r\n<th colspan=\"4\" scope=\"col\">Age of Invoice, in days<\/th>\r\n<\/tr>\r\n<tr>\r\n<th>0-30<\/th>\r\n<th>31-60<\/th>\r\n<th>61-90<\/th>\r\n<th>90+<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>A<\/td>\r\n<td class=\"r\">57,500<\/td>\r\n<td class=\"r\">40,000<\/td>\r\n<td class=\"r\">17,500<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>B<\/td>\r\n<td class=\"r\">22,000<\/td>\r\n<td class=\"r\">22,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>C<\/td>\r\n<td class=\"r\">74,500<\/td>\r\n<td class=\"r\">14,500<\/td>\r\n<td class=\"r\">50,000<\/td>\r\n<td class=\"r\">10,000<\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>D<\/td>\r\n<td class=\"r\">8,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">8,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>E<\/td>\r\n<td class=\"r\">12,500<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">12,500<\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>F<\/td>\r\n<td class=\"r\">25,000<\/td>\r\n<td class=\"r\">25,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>G<\/td>\r\n<td class=\"r\">50,500<\/td>\r\n<td class=\"r\">1,500<\/td>\r\n<td class=\"r\">30,000<\/td>\r\n<td class=\"r\">17,000<\/td>\r\n<td class=\"r\">2,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>250,000<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>103,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>97,500<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>39,500<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">1.0%<\/td>\r\n<td class=\"r\">5.0%<\/td>\r\n<td class=\"r\">15.0%<\/td>\r\n<td class=\"r\">95.0%<\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Uncollectible<\/th>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>21,330<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>1,030<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>4,875<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>5,925<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>9,500<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThe answer is still the same, just arrived at in a different manner by using the amount of the account that is UNcollectible rather than the amount that is collectible.\r\n\r\nAnother variation could look like this:\r\n<table class=\"fin-table acctstatement\">\r\n<thead>\r\n<tr>\r\n<th rowspan=\"2\" scope=\"col\">Customer<\/th>\r\n<th rowspan=\"2\" scope=\"col\">Amount Owed<\/th>\r\n<th colspan=\"4\" scope=\"col\">Age of Invoice, in days<\/th>\r\n<\/tr>\r\n<tr>\r\n<th>Current<\/th>\r\n<th>0-30<\/th>\r\n<th>31-60<\/th>\r\n<th>60+<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>A<\/td>\r\n<td class=\"r\">57,500<\/td>\r\n<td class=\"r\">40,000<\/td>\r\n<td class=\"r\">17,500<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>B<\/td>\r\n<td class=\"r\">22,000<\/td>\r\n<td class=\"r\">22,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>C<\/td>\r\n<td class=\"r\">74,500<\/td>\r\n<td class=\"r\">14,500<\/td>\r\n<td class=\"r\">50,000<\/td>\r\n<td class=\"r\">10,000<\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>D<\/td>\r\n<td class=\"r\">8,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">8,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>E<\/td>\r\n<td class=\"r\">12,500<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">12,500<\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>F<\/td>\r\n<td class=\"r\">25,000<\/td>\r\n<td class=\"r\">25,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">0<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>G<\/td>\r\n<td class=\"r\">50,500<\/td>\r\n<td class=\"r\">1,500<\/td>\r\n<td class=\"r\">30,000<\/td>\r\n<td class=\"r\">17,000<\/td>\r\n<td class=\"r\">2,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>250,000<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>103,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>97,500<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>39,500<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">1.0%<\/td>\r\n<td class=\"r\">5.0%<\/td>\r\n<td class=\"r\">15.0%<\/td>\r\n<td class=\"r\">95.0%<\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Uncollectible<\/th>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>21,330<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>1,030<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>4,875<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>5,925<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>9,500<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nOne final note: the information in an aging schedule also is useful to manage other purposes. Analysis of collection patterns of accounts receivable may suggest the need for changes in credit policies or for added financing.\r\n\r\nFor example, if the age of many customer balances has increased to 61\u201390 days past due, collection efforts may have to be strengthened. Or, the company may have to find other sources of cash to pay its debts within the discount period. Preparation of an aging schedule may also help identify certain accounts that should be written off as uncollectible.\r\n<div class=\"textbox tryit\">\r\n<h3>PRACTICE QUESTIONS<\/h3>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/23740\r\n\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/23741\r\n\r\n[ohm_question hide_question_numbers=1]204366[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li style=\"font-weight: 400;\">Prepare an accounts receivable aging analysis<\/li>\n<\/ul>\n<\/div>\n<p>Let\u2019s go back to Larkin, Co.\u2019s subsidiary ledger for last year, but let\u2019s add some details:<\/p>\n<table class=\"fin-table acctstatement\">\n<thead>\n<tr>\n<th rowspan=\"2\" scope=\"col\">Customer<\/th>\n<th rowspan=\"2\" scope=\"col\">Amount Owed<\/th>\n<th colspan=\"4\" scope=\"col\">Age of Invoice, in days<\/th>\n<\/tr>\n<tr>\n<th>0-30<\/th>\n<th>31-60<\/th>\n<th>61-90<\/th>\n<th>90+<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>A<\/td>\n<td class=\"r\">57,500<\/td>\n<td class=\"r\">40,000<\/td>\n<td class=\"r\">17,500<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>B<\/td>\n<td class=\"r\">22,000<\/td>\n<td class=\"r\">22,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>C<\/td>\n<td class=\"r\">74,500<\/td>\n<td class=\"r\">14,500<\/td>\n<td class=\"r\">50,000<\/td>\n<td class=\"r\">10,000<\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>D<\/td>\n<td class=\"r\">8,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">8,000<\/td>\n<\/tr>\n<tr>\n<td>E<\/td>\n<td class=\"r\">12,500<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">12,500<\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>F<\/td>\n<td class=\"r\">25,000<\/td>\n<td class=\"r\">25,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>G<\/td>\n<td class=\"r\">50,500<\/td>\n<td class=\"r\">1,500<\/td>\n<td class=\"r\">30,000<\/td>\n<td class=\"r\">17,000<\/td>\n<td class=\"r\">2,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>250,000<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>103,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>97,500<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>39,500<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>10,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Let\u2019s also assume that Larkin Co. extends normal credit terms of net 30, meaning the invoice is due within 30 days. Each customer may have several outstanding invoices. Let\u2019s say this schedule was prepared on 12\/31 and Customer A had two outstanding invoices: a bill for $40,000 dated December 15, making it not overdue, and a bill for $17,500 dated November 30, making it just slightly (one day) overdue.<\/p>\n<p>Sometimes this schedule is prepared using \u201cdays past due.\u201d Different companies do it according to their own internal needs. In any case, this is an accounts receivable aging schedule. It\u2019s that simple and is a canned report in most, if not all, accounting packages. We can use this report to more precisely calculate the allowance for doubtful accounts and therefore the net realizable value of accounts receivable.<\/p>\n<p>First, based on a historical analysis of collectibility, we assign a probability of collection to each category. Obviously, the older an account is, the less likely we will be able to collect it.<\/p>\n<p>Let\u2019s say over time we have learned this:<\/p>\n<div style=\"text-align: left;\">\n<table>\n<tbody>\n<tr>\n<th scope=\"col\"># of days old<\/th>\n<th scope=\"col\">Probability of collecting<\/th>\n<\/tr>\n<tr>\n<td>0-30<\/td>\n<td>99%<\/td>\n<\/tr>\n<tr>\n<td>31-60<\/td>\n<td>95%<\/td>\n<\/tr>\n<tr>\n<td>61-90<\/td>\n<td>85%<\/td>\n<\/tr>\n<tr>\n<td>90+<\/td>\n<td>5%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>In other words, our experience is that we collect 99% of the current billings, but that likelihood drops to 95% if they go past the due date, and drops again to only 85% if they haven\u2019t paid by day 61 (more than 30 days past due). After 90 days, we don\u2019t have much hope, only a 5% probability of getting our money, which means that a few people who don\u2019t pay on time still eventually pay, but not many.<\/p>\n<p>We\u2019re accountants, but we also have to be statisticians. We apply the probability of collecting the accounts to the aging analysis like this:<\/p>\n<table class=\"fin-table acctstatement\">\n<thead>\n<tr>\n<th rowspan=\"2\" scope=\"col\">Customer<\/th>\n<th rowspan=\"2\" scope=\"col\">Amount Owed<\/th>\n<th colspan=\"4\" scope=\"col\">Age of Invoice, in days<\/th>\n<\/tr>\n<tr>\n<th>0-30<\/th>\n<th>31-60<\/th>\n<th>61-90<\/th>\n<th>90+<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>A<\/td>\n<td class=\"r\">57,500<\/td>\n<td class=\"r\">40,000<\/td>\n<td class=\"r\">17,500<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>B<\/td>\n<td class=\"r\">22,000<\/td>\n<td class=\"r\">22,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>C<\/td>\n<td class=\"r\">74,500<\/td>\n<td class=\"r\">14,500<\/td>\n<td class=\"r\">50,000<\/td>\n<td class=\"r\">10,000<\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>D<\/td>\n<td class=\"r\">8,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">8,000<\/td>\n<\/tr>\n<tr>\n<td>E<\/td>\n<td class=\"r\">12,500<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">12,500<\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>F<\/td>\n<td class=\"r\">25,000<\/td>\n<td class=\"r\">25,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>G<\/td>\n<td class=\"r\">50,500<\/td>\n<td class=\"r\">1,500<\/td>\n<td class=\"r\">30,000<\/td>\n<td class=\"r\">17,000<\/td>\n<td class=\"r\">2,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>250,000<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>103,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>97,500<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>39,500<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>10,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">99.0%<\/td>\n<td class=\"r\">95.0%<\/td>\n<td class=\"r\">85.0%<\/td>\n<td class=\"r\">5.0%<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">NRV<\/th>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>228,670<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>101,970<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>92,625<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>33,575<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>500<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>According to this calculation, the net realizable value, which is the cash value, or the amount we expect to ultimately collect, is $228,670 against gross receivables of $250,000, which means the balance of the contra-asset account we set up called Allowance for Doubtful Accounts should be $21,330.<\/p>\n<p>You can then prepare the adjusting journal entry.<\/p>\n<p>Say the balance in the allowance account is currently a credit of $10,000, which would be the combination of all the prior entries to that account, commonly prior period-end adjustments and write-offs. You would calculate the adjusting journal entry like this:<\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10214424\/Screen-Shot-2020-11-10-at-1.41.24-PM.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-5475\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10214424\/Screen-Shot-2020-11-10-at-1.41.24-PM-300x262.png\" alt=\"A T account for Allowance for Doubtful Accounts. There is a credit balance at the top of 10,000 dollars, as well as an adjusting journal entry on the credit side of 11,330 dollars. The total credit balance is 21,330 dollars.\" width=\"293\" height=\"256\" \/><\/a><\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10215407\/Screen-Shot-2020-11-10-at-1.41.28-PM.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-5476\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10215407\/Screen-Shot-2020-11-10-at-1.41.28-PM-300x237.png\" alt=\"A T account for Bad Debt Expense. On the debit side is an adjusting journal entry for 11,330 dollars.\" width=\"300\" height=\"237\" \/><\/a><\/p>\n<p>Let\u2019s say the balance before your adjustment was a debit of $2,000 because you had written off more accounts during the year than you had allowance for. You would calculate the adjustment like this:<\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10220432\/Screen-Shot-2020-11-10-at-1.41.34-PM.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-5477\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10220432\/Screen-Shot-2020-11-10-at-1.41.34-PM-300x229.png\" alt=\"A T account for allowance for doubtful accounts. At the top is a debit balance of 2,000 dollars. There is also a credit adjusting journal entry of 23,330 dollars. The total credit balance is 21,330 dollars.\" width=\"300\" height=\"229\" \/><\/a><\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10220820\/Screen-Shot-2020-11-10-at-1.41.40-PM.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-5478\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/10220820\/Screen-Shot-2020-11-10-at-1.41.40-PM-300x239.png\" alt=\"A T account for Bad Debt Expense. There is a adjusting journal entry on the debit side for 23,330 dollars.\" width=\"300\" height=\"239\" \/><\/a><\/p>\n<p>Just to review: There is no entry to Accounts Receivable because it matches the subsidiary ledger that includes all the accounts, and we are making an allowance for future accounts that will go bad, but we don\u2019t yet know which. When we actually write off an account some time in the future, we will reduce Accounts Receivable (with a credit entry) and the AR subsidiary ledger, and we will also reduce the Allowance account (with a debit).<\/p>\n<p>Some companies prepare the aging analysis like this:<\/p>\n<table class=\"fin-table acctstatement\">\n<thead>\n<tr>\n<th rowspan=\"2\" scope=\"col\">Customer<\/th>\n<th rowspan=\"2\" scope=\"col\">Amount Owed<\/th>\n<th colspan=\"4\" scope=\"col\">Age of Invoice, in days<\/th>\n<\/tr>\n<tr>\n<th>0-30<\/th>\n<th>31-60<\/th>\n<th>61-90<\/th>\n<th>90+<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>A<\/td>\n<td class=\"r\">57,500<\/td>\n<td class=\"r\">40,000<\/td>\n<td class=\"r\">17,500<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>B<\/td>\n<td class=\"r\">22,000<\/td>\n<td class=\"r\">22,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>C<\/td>\n<td class=\"r\">74,500<\/td>\n<td class=\"r\">14,500<\/td>\n<td class=\"r\">50,000<\/td>\n<td class=\"r\">10,000<\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>D<\/td>\n<td class=\"r\">8,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">8,000<\/td>\n<\/tr>\n<tr>\n<td>E<\/td>\n<td class=\"r\">12,500<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">12,500<\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>F<\/td>\n<td class=\"r\">25,000<\/td>\n<td class=\"r\">25,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>G<\/td>\n<td class=\"r\">50,500<\/td>\n<td class=\"r\">1,500<\/td>\n<td class=\"r\">30,000<\/td>\n<td class=\"r\">17,000<\/td>\n<td class=\"r\">2,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>250,000<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>103,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>97,500<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>39,500<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>10,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">1.0%<\/td>\n<td class=\"r\">5.0%<\/td>\n<td class=\"r\">15.0%<\/td>\n<td class=\"r\">95.0%<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Uncollectible<\/th>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>21,330<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>1,030<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>4,875<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>5,925<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>9,500<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The answer is still the same, just arrived at in a different manner by using the amount of the account that is UNcollectible rather than the amount that is collectible.<\/p>\n<p>Another variation could look like this:<\/p>\n<table class=\"fin-table acctstatement\">\n<thead>\n<tr>\n<th rowspan=\"2\" scope=\"col\">Customer<\/th>\n<th rowspan=\"2\" scope=\"col\">Amount Owed<\/th>\n<th colspan=\"4\" scope=\"col\">Age of Invoice, in days<\/th>\n<\/tr>\n<tr>\n<th>Current<\/th>\n<th>0-30<\/th>\n<th>31-60<\/th>\n<th>60+<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>A<\/td>\n<td class=\"r\">57,500<\/td>\n<td class=\"r\">40,000<\/td>\n<td class=\"r\">17,500<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>B<\/td>\n<td class=\"r\">22,000<\/td>\n<td class=\"r\">22,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>C<\/td>\n<td class=\"r\">74,500<\/td>\n<td class=\"r\">14,500<\/td>\n<td class=\"r\">50,000<\/td>\n<td class=\"r\">10,000<\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>D<\/td>\n<td class=\"r\">8,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">8,000<\/td>\n<\/tr>\n<tr>\n<td>E<\/td>\n<td class=\"r\">12,500<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">12,500<\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>F<\/td>\n<td class=\"r\">25,000<\/td>\n<td class=\"r\">25,000<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">0<\/td>\n<\/tr>\n<tr>\n<td>G<\/td>\n<td class=\"r\">50,500<\/td>\n<td class=\"r\">1,500<\/td>\n<td class=\"r\">30,000<\/td>\n<td class=\"r\">17,000<\/td>\n<td class=\"r\">2,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>250,000<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>103,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>97,500<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>39,500<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>10,000<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">1.0%<\/td>\n<td class=\"r\">5.0%<\/td>\n<td class=\"r\">15.0%<\/td>\n<td class=\"r\">95.0%<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Uncollectible<\/th>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>21,330<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>1,030<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>4,875<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>5,925<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>9,500<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>One final note: the information in an aging schedule also is useful to manage other purposes. Analysis of collection patterns of accounts receivable may suggest the need for changes in credit policies or for added financing.<\/p>\n<p>For example, if the age of many customer balances has increased to 61\u201390 days past due, collection efforts may have to be strengthened. Or, the company may have to find other sources of cash to pay its debts within the discount period. Preparation of an aging schedule may also help identify certain accounts that should be written off as uncollectible.<\/p>\n<div class=\"textbox tryit\">\n<h3>PRACTICE QUESTIONS<\/h3>\n<p>\t<iframe id=\"lumen_assessment_23740\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=23740&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_23740\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<p>\t<iframe id=\"lumen_assessment_23741\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=23741&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_23741\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<p><iframe loading=\"lazy\" id=\"ohm204366\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=204366&theme=oea&iframe_resize_id=ohm204366\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-3554\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Accounts Receivable Aging Analysis. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Accounting Principles: A Business Perspective. <strong>Authored by<\/strong>: James Don Edwards, University of Georgia &amp; Roger H. Hermanson, Georgia State University. <strong>Provided by<\/strong>: Endeavour International Corporation. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/The%20Global%20Text%20Project\">http:\/\/The%20Global%20Text%20Project<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":90270,"menu_order":10,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Accounts Receivable Aging Analysis\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective\",\"author\":\"James Don Edwards, University of Georgia & Roger H. 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