appear to be within the company’s credit period for all customers. In the example above, if we assume that the company’s credit policy is 60 days, then customers ABC & Co. Alternatively, it may also indicate that the business is inefficient at collecting payments. It can be considered a sign that the company is incurring excessive risk by extending credit terms to customers that are unlikely to pay. The report breaks down receivables due from all customers into different aging categories based on the number of days since the respective invoices were raised.Ī company should be worried if the accounts receivable aging report identifies that many accounts are outstanding for long periods of time.
If the reconciliation is not conducted and there turns out to be an error in the general ledger, this means there could be a material inaccuracy in the financial statements.Īt a minimum, there should be a reconciliation of accounts receivable at the end of the fiscal year, so that any inaccuracies related to receivables will have been removed from the financial statements prior to their examination by the company's external auditors.Updated NovemWhat is an Accounts Receivable Aging Report?Īn accounts receivable aging report or receivable aging report refers to a summary of all receivables due from customers at any given point in time. This reconciliation process is typically conducted as part of the month-end closing activities prior to issuance of the financial statements. A final possibility is that the aged receivables report was run as of a different date than the date used to obtain the general ledger balance. This is the least common reason for a difference, since the billing module is set to automatically record all billings to the correct account. Another reason is that a billing was accidentally posted to an account other than the trade receivables account. This is the most common reason for a difference. One reason is that a journal entry was made to the general ledger account that bypassed the subsidiary sales ledger. When the reconciliation is conducted, there may be differences between the two amounts. The totals on this report are then compared to the receivable total in the general ledger. To extract this information for reconciliation purposes, print the aged accounts receivable report as of the final day of the reporting period. The detailed listing of unpaid customer billings that should match the ending balance in the general ledger is usually recorded in a subsidiary sales ledger. After all transactions have been recorded for a reporting period and all subsidiary ledger balances have been posted to the general ledger, the resulting ending balance in the receivables account is the summary total to be verified through a reconciliation. There is usually an account in the general ledger that is specifically designated for the sole compilation of all receivables related to customers (known as trade receivables).
The two information sources for this reconciliation are noted below. This matching process is important, because it proves that the general ledger figure for receivables is justified.
The reconciliation of accounts receivable is the process of matching the detailed amounts of unpaid customer billings to the accounts receivable total stated in the general ledger.