Aging of accounts receivable aging of accounts

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Unformatted text preview: o “age” the accounts receivable. By this process the firm can determine whether the problem exists in its accounts receivable in general or is attributable to a few specific accounts. Aging of Accounts Receivable aging of accounts receivable A credit-monitoring technique that uses a schedule that indicates the percentages of the total accounts receivable balance that have been outstanding for specified periods of time. The aging of accounts receivable requires the firm’s accounts receivable to be broken down into groups on the basis of the time of origin. The breakdown is typically made on a month-by-month basis, going back 3 or 4 months. The result is a schedule that indicates the percentages of the total accounts receivable balance that have been outstanding for specified periods of time. Its purpose is to enable the firm to pinpoint problems. If a firm with terms of net 30 has an average collection period (minus receipt, processing, and collection time) of 50 days, the firm will want to age its accounts receivable. If the majority of accounts are 2 months old, then the firm has a general problem and should review its accounts receivable operations. If th...
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