It is no secret that every company requires an aging accounts receivable report. This is done to ensure the smooth operation of the company. It is important to understand that the accounts receivable aging report can have an impact on managing cash flow.
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When cash flow is well managed, all company activities will run smoothly. Therefore, the existence of an aging accounts receivable report can serve as a reminder to the company, especially regarding operational debts.
To understand it better, let’s explore the definition of an aging accounts receivable report and how to create it.
Definition of Aging Accounts Receivable Report
In essence, an aging accounts receivable report is a summary of receivables and payments organized based on details. For example, it includes invoice numbers and due dates within a specific period.
Additionally, this report also helps determine the position of receivables. It enables the company to make appropriate financial decisions. Consequently, managing aging accounts receivable becomes crucial for maintaining a healthy cash flow. Analyzing the aging of receivables indirectly impacts the company’s small and large cash balances.
Analysis Groups in Aging Accounts Receivable
The existence of the aging accounts receivable report also facilitates analysis for the company. Based on the due dates, there are several groups to consider:
- Current Receivables Group: This group refers to companies that make payments according to the due dates. In other words, they always pay their debts on time.
- Past Due Receivables Group: This group consists of receivables that exceed the predetermined due dates. Typically, this ranges from 7 to 30 days but is still active in terms of collection efforts.
- Bad Debts Group: This group includes receivables that exceed the specified time limit and have a grace period of more than 30 days after the due date.
Requirements for Creating an Aging Accounts Receivable Report
Before delving into the creation process, there are several requirements to consider. The requirements for creating an aging accounts receivable report are as follows:
1. Sales Invoices
Firstly, sales invoices serve as the basis for recording the emergence of receivables from credit sales transactions. These documents are usually accompanied by a bill of lading and delivery order. They function as supporting documents to record credit sales transactions.
2. Cash Receipts Proof
Next, cash receipts proof is used to record the reduction of receivables from debtors’ payments. The documentation for recording receivables includes payment notifications or remittance advice. They serve as the source documents for recording.
3. Credit Memo
The next document needed to create an aging accounts receivable report is the credit memo. This document is used to record sales returns.
Typically, the credit memo is issued by the sales order department. When accompanied by a receiving report from the receiving department, the credit memo becomes the source document. Its purpose is to record sales return transactions in the customer’s accounts receivable report.
4. Memorandum Voucher
The final document required for recording the aging accounts receivable report is the memorandum voucher, also known as a journal voucher. This document serves as the basis for recording transactions in the general journal. It is usually issued by the credit function, authorizing the write-off of uncollectible receivables.
In recording the customer’s accounts receivable report, this document is used as the basis for recording the write-off of receivables.
How to Create an Aging Accounts Receivable Report
After obtaining the requirements, the next step is to create an aging accounts receivable report, as outlined below:
1. Prepare a List of the Company’s Accounts Receivable Aging
The accounts receivable aging list is a categorization of business receivables based on the payment due dates for auditing purposes and others. The purpose of this list is to classify current receivables, past due receivables, and bad debts as mentioned earlier.
For bad debts, further classification is done based on additional time periods. For example, 1-30 days, 31-60 days, 61-90 days, and more than 90 days. This accounts receivable aging list will be useful in determining the aging ratio of receivables and write-offs for the company.
2. Choose Software to Create the Aging Accounts Receivable Report and Analysis
To calculate the accounts receivable report, you need specialized software such as financial software. Using such an application will facilitate the calculation process and help avoid errors.
When selecting financial software, it is advisable to choose one that is user-friendly, real-time, effective, and affordable when renting it. You can search for suitable software using search engines.
3. Create the Accounts Receivable Report Format
The report format is created in the form of a table. You will need at least 10 indicators to be included in the table.
Some of the required formats include:
- Sequential invoice number
- Invoice date
- Invoice number
- Customer name
- Invoice amount
- Accounts receivable aging
- Aging 0-30 days
- Aging 31-60 days
- Aging 61-90 days
- Aging over 90 days.
4. Create Formulas
Once all the indicators are entered into the provided format, the next step is to create formulas. The goal is to have the values in each column of each group appear automatically.
However, the formulas should be adjusted according to the cells used. For easier implementation, you can download pre-made Excel templates available online. This greatly simplifies the creation of the aging accounts receivable report.
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That concludes the definition of the aging accounts receivable report and how to create it. Hopefully, this information will be beneficial to all readers.