The aging schedule can be used to identify the customers that are extending beyond your collection terms. If the bulk of the overdue amount in receivables is attributable to one customer, then steps can be taken to see that this customer’s account is collected promptly. If overdue amounts stem from a number of customers, your business needs to tighten its credit policy toward new and existing customers.
The A/R Aging Schedule also identifies any recent changes in the accounts making up your total accounts receivable balance. If the makeup of your accounts receivable changes (compared to the previous month) you should be able to spot the change instantly.
Average Colection period: Accounts Receivables divided by Average daily credit sales
The average collection period only shows how long it takes to collect your credit sales on average. The aging schedule shows your total accounts receivable, and the exact amounts that are owed in each time frame categories.
Debit cash / bank 1200Credit accounts receivable 1200If it is a collection from customer's account, thenDEBIT: Cash 1200CREDIT: Accounts Receivable 1200Collection from customer's account
A Credit entry reduces Accounts Receivable
$500,000
Average Colection period: Accounts Receivables divided by Average daily credit sales
The average collection period only shows how long it takes to collect your credit sales on average. The aging schedule shows your total accounts receivable, and the exact amounts that are owed in each time frame categories.
a. Average collection period = Accounts receivable/Average daily credit sales An increase in the average collection period may be the result of a predetermined plan to expand credit terms or the consequence of poor credit administration. b. Ratio of bad debts to credit sales. An increasing ratio may indicate too many weak accounts or an aggressive market expansion policy. c. Aging of accounts receivable. Aging of accounts receivable is one way of finding out if customers are paying their bills within the time prescribed in the credit terms. If there is a buildup in receivables beyond normal credit terms, cash inflows will suffer and more stringent credit terms and collection procedures may have to be implemented.
Debit cash / bank 1200Credit accounts receivable 1200If it is a collection from customer's account, thenDEBIT: Cash 1200CREDIT: Accounts Receivable 1200Collection from customer's account
A Credit entry reduces Accounts Receivable
$500,000
Definition: This is the number of times accounts receivable collected throughout the year.Formula:Accounts Receivable Turnover Ratio = annual credit sales / average accounts receivable An investment in accounts receivable is a necessity for most companies to do business. However, too much receivables or too little can be unhealthy. An abnormally low level can be the result of over ambitious collection efforts or a credit policy that is too tight. These conditions can result in lost sales. An excessive receivables level can be the result of a credit policy that is too loose or inadequate collection efforts. These situations can result in increased bad debt and higher costs.
Accounts receivable is decreased with credit balance or by receiving the cash from customers.
Invoices must have dates on them... a collection of invoices for goods & services sold on credit comprise accounts receivable. On the basis of date of each invoice, the ageing is determined.
Because accounts receivable is that amount which is receivable from customer due to sales of goods on credit.
Accounts Receivable Carry Cost considers cost factors such as cost of capital, bad debt, legal and collection fees, fees, credit card fees, discounts and service charges to evaluate the effectiveness of Accounts Receivable management provided
average collection period= accounts receivable/daily credit sales %10 of 1.2 million = 120000 = sales for cash 1.2m-120000=1.080000=sales on credit ( divide by 360 to find daily credit sales) ACP=180000/(1080000/360)= 60 days