Accounts Receivables
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What is Accounts Receivable?

Accounts Receivable refers to the outstanding or overdue invoices a corporate has or the money clients owe the company. The term may also refer to a commercial business who has the right to receive because it has delivered a product or service and is considered as revenue at this point. Receivables represent a line of credit extended or created by a company and normally have specific terms that require payments from invoices due within a time limit. As a standard, it ranges from a few days to several months depending on the corporate’s credit policy.

Corporates record accounts receivables as assets on their balance sheets since there is a legal obligation for the customer to pay the debt. Furthermore, accounts receivable are current assets, meaning the account balance is due from the debtor in accordance with credit terms granted. If a company has receivables, this means it has made a sale on credit but has yet to collect the money from the purchaser.
Accounts Receivables Reconciliation and Aging Report

It is important to manage your account receivables because the timing of receivables is a major factor in the company's cash flow. A customer account balances that can be individually reconciled with the general ledger balance establishes the accuracy of the balance sheet asset. When a company has a proper accounting department, this process should be done at least monthly as part of the month-end closing procedures so any adjustments needed at any stage can be included in the correct period. Furthermore, it's a healthy practice for the reconciliation to be checked against the company's management standards and signed off by another member of the staff.
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What is Reconciling Accounts?

When goods or services are sold to customers on credit, the amounts they owe your business make up the accounts receivable balance in the general ledger. Their current outstanding balances are found in the subsidiary sales document and listed in the aged accounts receivable report. The reconciliation of accounts receivable means that the current total of the individual amounts due from debtors equals the balance of the accounts receivable account in the general ledger.

Accounts receivable reconciliation is the process of matching the detailed amounts of unpaid customer billings to the accounts receivable total stated in the general ledger. This process is extremely important because it proves that the general ledger figure for receivables is justified, and any discrepancy within the records can be detected when compared against the ledger. The two information sources for this reconciliation are as follows:

  • General ledger: The general ledger usually contains an account that is specifically designated for the sole compilation of a list of all receivables related to customers (known as trade receivables). Once all bank or personal transactions have been recorded for a reporting period and all subsidiary ledger balances have been posted to the general ledger, the resulting ending balance is the condensed total to be verified through a reconciliation.
  • Receivables detail: A subsidiary sales ledger usually houses the detailed listing of unpaid customer billings that should match the ending balance in the general ledger. This information can be extracted for reconciliation purposes by printing the aged accounts receivable report as of the final day of the reporting period. The totals on this report are then compared to the complete receivable total in the master consolidated ledger.
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What is Accounts Receivable?

Accounts Receivable refers to the outstanding or overdue invoices a corporate has or the money clients owe the company. The term may also refer to a commercial business who has the right to receive because it has delivered a product or service and is considered as revenue at this point. Receivables represent a line of credit extended or created by a company and normally have specific terms that require payments from invoices due within a time limit. As a standard, it ranges from a few days to several months depending on the corporate’s credit policy.

Corporates record accounts receivables as assets on their balance sheets since there is a legal obligation for the customer to pay the debt. Furthermore, accounts receivable are current assets, meaning the account balance is due from the debtor in accordance with credit terms granted. If a company has receivables, this means it has made a sale on credit but has yet to collect the money from the purchaser.
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Accounts Receivables Reconciliation and Aging Report

It is important to manage your account receivables because the timing of receivables is a major factor in the company's cash flow. A customer account balances that can be individually reconciled with the general ledger balance establishes the accuracy of the balance sheet asset. When a company has a proper accounting department, this process should be done at least monthly as part of the month-end closing procedures so any adjustments needed at any stage can be included in the correct period. Furthermore, it's a healthy practice for the reconciliation to be checked against the company's management standards and signed off by another member of the staff.
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What is Reconciling Accounts?

When goods or services are sold to customers on credit, the amounts they owe your business make up the accounts receivable balance in the general ledger. Their current outstanding balances are found in the subsidiary sales document and listed in the aged accounts receivable report. The reconciliation of accounts receivable means that the current total of the individual amounts due from debtors equals the balance of the accounts receivable account in the general ledger.

Accounts receivable reconciliation is the process of matching the detailed amounts of unpaid customer billings to the accounts receivable total stated in the general ledger. This process is extremely important because it proves that the general ledger figure for receivables is justified, and any discrepancy within the records can be detected when compared against the ledger. The two information sources for this reconciliation are as follows:

  • General ledger: The general ledger usually contains an account that is specifically designated for the sole compilation of a list of all receivables related to customers (known as trade receivables). Once all bank or personal transactions have been recorded for a reporting period and all subsidiary ledger balances have been posted to the general ledger, the resulting ending balance is the condensed total to be verified through a reconciliation.
  • Receivables detail: A subsidiary sales ledger usually houses the detailed listing of unpaid customer billings that should match the ending balance in the general ledger. This information can be extracted for reconciliation purposes by printing the aged accounts receivable report as of the final day of the reporting period. The totals on this report are then compared to the complete receivable total in the master consolidated ledger.
What is the Reconciliation Procedure?
Verifying your Data

Accounts receivable balance ledger should be verified, starting with the balance brought forward from the previous period. The total of all invoices issued from the sales day book should be added and any credit notes are deducted.
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Identify Differences

Any difference between the two balances must be investigated. Common reasons for discrepancies are journal or adjusting entries made directly in the general ledger and not reflected in the subsidiary sales ledger or vice versa and differing cut off dates of the reports used. Furthermore, extra possible errors are incorrectly offsetting customer and supplier contra accounts and posting to the wrong general ledger account.
Make Corrections

When all errors are identified, make the adjusting entries needed for the accounts to reconcile with the correct balances. A clear description of the reason for each transaction should be included for auditing purposes, followed by reversing the incorrect entry where possible and reposting it correctly, rather than posting the difference only, to make the transaction easier to follow. Reconcile the balances once more as a final check, when there are no additions to the file entries.

There may be differences between the amounts of general ledger versus the receivable details when reconciling, for the following reasons:

  • An entry in the journal was made to the general ledger account that bypassed the subsidiary sales ledger. This is considered one of the most common reasons for a difference.
  • An account contains a billing that was accidentally posted other than the trade receivables account. This is considered to be one of the least common reasons for a difference since the billing module is set to automatically record all billings to the correct account.
  • The report of the aged receivable was run as of a different date than the date used to obtain the general ledger balance.
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Verifying your Data

Accounts receivable balance ledger should be verified, starting with the balance brought forward from the previous period. The total of all invoices issued from the sales day book should be added and any credit notes are deducted.
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Identify Differences

Any difference between the two balances must be investigated. Common reasons for discrepancies are journal or adjusting entries made directly in the general ledger and not reflected in the subsidiary sales ledger or vice versa and differing cut off dates of the reports used. Furthermore, extra possible errors are incorrectly offsetting customer and supplier contra accounts and posting to the wrong general ledger account.
Make Corrections

When all errors are identified, make the adjusting entries needed for the accounts to reconcile with the correct balances. A clear description of the reason for each transaction should be included for auditing purposes, followed by reversing the incorrect entry where possible and reposting it correctly, rather than posting the difference only, to make the transaction easier to follow. Reconcile the balances once more as a final check, when there are no additions to the file entries.

There may be differences between the amounts of general ledger versus the receivable details when reconciling, for the following reasons:

  • An entry in the journal was made to the general ledger account that bypassed the subsidiary sales ledger. This is considered one of the most common reasons for a difference.
  • An account contains a billing that was accidentally posted other than the trade receivables account. This is considered to be one of the least common reasons for a difference since the billing module is set to automatically record all billings to the correct account.
  • The report of the aged receivable was run as of a different date than the date used to obtain the general ledger balance.
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Verifying your Data

Accounts receivable balance ledger should be verified, starting with the balance brought forward from the previous period. The total of all invoices issued from the sales day book should be added and any credit notes are deducted.
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Identify Differences

Any difference between the two balances must be investigated. Common reasons for discrepancies are journal or adjusting entries made directly in the general ledger and not reflected in the subsidiary sales ledger or vice versa and differing cut off dates of the reports used. Furthermore, extra possible errors are incorrectly offsetting customer and supplier contra accounts and posting to the wrong general ledger account.
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Make Corrections

When all errors are identified, make the adjusting entries needed for the accounts to reconcile with the correct balances. A clear description of the reason for each transaction should be included for auditing purposes, followed by reversing the incorrect entry where possible and reposting it correctly, rather than posting the difference only, to make the transaction easier to follow. Reconcile the balances once more as a final check, when there are no additions to the file entries.

There may be differences between the amounts of general ledger versus the receivable details when reconciling, for the following reasons:

  • An entry in the journal was made to the general ledger account that bypassed the subsidiary sales ledger. This is considered one of the most common reasons for a difference.
  • An account contains a billing that was accidentally posted other than the trade receivables account. This is considered to be one of the least common reasons for a difference since the billing module is set to automatically record all billings to the correct account.
  • The report of the aged receivable was run as of a different date than the date used to obtain the general ledger balance.
Why is the Accounts Receivable Reconciliation Important?
Typically, the reconciliation process is conducted as part of the month-end closing activities prior to issuance of the financial statements report. If it is not conducted and there turns out to be an error in the general ledger folder, this means there could be a material inaccuracy in the financial statements.
There should be a reconciliation of accounts receivable at the end of the fiscal year at a minimum so that any inaccuracies related to receivables will have been removed from the reported financial statements prior to their examination by the company's external auditors.
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Typically, the reconciliation process is conducted as part of the month-end closing activities prior to issuance of the financial statements report. If it is not conducted and there turns out to be an error in the general ledger folder, this means there could be a material inaccuracy in the financial statements.

There should be a reconciliation of accounts receivable at the end of the fiscal year at a minimum so that any inaccuracies related to receivables will have been removed from the reported financial statements prior to their examination by the company's external auditors.
What Is Accounts Receivable Aging?
It is the process of distinguishing open accounts receivables based on the length of time an invoice has been outstanding. The report is utilized as a gauge to determine the financial health of a company's customers. If company's receivables are shown to be collected much slower than normal within the receivable aging, this is a warning sign that business may be slowing down or that the company is taking a huge credit risk in its sales practices. Furthermore, the aged receivables report tabulates invoices owed by length, often in 30-day segments as listed below, for quick reference:

  • 0 to 30 days
  • 31 to 60 days
  • 61 to 90 days
  • 91 days and more
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How does Accounts Receivable Aging Work?

The account receivables aging can indicate that certain customers are becoming credit risks, and may reveal whether the company should keep doing business with customers that are systematically late payers. There are usually columns within the aging report that are typically broken into date ranges of 30 days, and shows total receivables that are currently due, as well as receivables that are past due.
Allowance for Doubtful Accounts

Determining the allowance for doubtful accounts is one of the useful benefits of the accounts receivable aging. When estimating the amount of bad debt to report on a company’s financial statements, the accounts receivable aging report is useful to estimate the total amount to be written off. The main beneficial feature is the aggregation of receivables based on the length of time the invoice has been past due.

A fixed percentage of default to each date range is applied by a company. If there are any invoices past due for longer periods of time, they are in turn given a higher percentage due to increasing default risk and decreasing collectability. The total of the products from each outstanding date range provides an estimate regarding the number of uncollectible receivables.
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Benefits of Accounts Receivable Aging

Companies will use the information on an accounts receivable aging report to plan their collection actions, such as creating letters or making follow up phone calls to customers with overdue purchase balances. The month-end statement or collection letter mailed to customers alongside the accounts receivable aging report provides a detailed account of outstanding items.

Ensuring a timely manner of customers’ collections is extremely important for the cash flow and operations of a company. Therefore, both internal, as well as external parties, should periodically clean up the accounts receivables aging report for accurate reference.

The findings from accounts receivable aging reports may be improved in various ways. First, accounts receivables are derivations of the extension of credit. When collecting accounts become difficult for a company, as evidenced by the accounts receivable aging report, specific customers may be extended business on a cash-only basis. Hence, laying out credit and selling practices becomes easier when an aging report is processed.
It is the process of distinguishing open accounts receivables based on the length of time an invoice has been outstanding. The report is utilized as a gauge to determine the financial health of a company's customers. If company's receivables are shown to be collected much slower than normal within the receivable aging, this is a warning sign that business may be slowing down or that the company is taking a huge credit risk in its sales practices. Furthermore, the aged receivables report tabulates invoices owed by length, often in 30-day segments as listed below, for quick reference:

  • 0 to 30 days
  • 31 to 60 days
  • 61 to 90 days
  • 91 days and more

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How does Accounts Receivable Aging Work?

The account receivables aging can indicate that certain customers are becoming credit risks, and may reveal whether the company should keep doing business with customers that are systematically late payers. There are usually columns within the aging report that are typically broken into date ranges of 30 days, and shows total receivables that are currently due, as well as receivables that are past due.
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Allowance for Doubtful Accounts

Determining the allowance for doubtful accounts is one of the useful benefits of the accounts receivable aging. When estimating the amount of bad debt to report on a company’s financial statements, the accounts receivable aging report is useful to estimate the total amount to be written off. The main beneficial feature is the aggregation of receivables based on the length of time the invoice has been past due.

A fixed percentage of default to each date range is applied by a company. If there are any invoices past due for longer periods of time, they are in turn given a higher percentage due to increasing default risk and decreasing collectability. The total of the products from each outstanding date range provides an estimate regarding the number of uncollectible receivables.
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Benefits of Accounts Receivable Aging

Companies will use the information on an accounts receivable aging report to plan their collection actions, such as creating letters or making follow up phone calls to customers with overdue purchase balances. The month-end statement or collection letter mailed to customers alongside the accounts receivable aging report provides a detailed account of outstanding items.

Ensuring a timely manner of customers’ collections is extremely important for the cash flow and operations of a company. Therefore, both internal, as well as external parties, should periodically clean up the accounts receivables aging report for accurate reference.

The findings from accounts receivable aging reports may be improved in various ways. First, accounts receivables are derivations of the extension of credit. When collecting accounts become difficult for a company, as evidenced by the accounts receivable aging report, specific customers may be extended business on a cash-only basis. Hence, laying out credit and selling practices becomes easier when an aging report is processed.
How to Use an Accounts Receivables Aging Report
First look at the greatest amounts of money owed by all customers. Are these amounts current? Are they 30 days? Or have these bills been outstanding for 120 days or more?

Consider the 80/20 principle (sometimes called the Pareto Principle) that says that roughly 80% of problems are caused by 20% of the group. If you focus on the 20%, the customers with the highest balances, you are maximizing your collections. This will bring you the highest return. Determine how you'll handle each of these large bills, then write up a plan and have your accounts receivable manager start working.

Are you looking for an outsource partner to reconcile your Accounts Receivables and prepare your Aging Reports? Our team at InTune is ready to offer assistance. Call or email us today to find out how we can help you.
First look at the greatest amounts of money owed by all customers. Are these amounts current? Are they 30 days? Or have these bills been outstanding for 120 days or more?

Consider the 80/20 principle (sometimes called the Pareto Principle) that says that roughly 80% of problems are caused by 20% of the group. If you focus on the 20%, the customers with the highest balances, you are maximizing your collections. This will bring you the highest return. Determine how you'll handle each of these large bills, then write up a plan and have your accounts receivable manager start working.

Are you looking for an outsource partner to reconcile your Accounts Receivables and prepare your Aging Reports? Our team at InTune is ready to offer assistance. Call or email us today to find out how we can help you.
In such circumstances, the company may run into a very common issue with traditional Accounts Payable Aging Reports. As invoices are listed in 30-day time buckets, the individual due dates are not accounted for. As such, there may be unpaid invoices in the "0 to 30 days" column which are already overdue, and bills in the 60-day category which are not yet payable because of extended allowance. To counter this, business owners may need to find ways to regularly review the aging report's accuracy in order to keep it effective for many more months.

Fortunately, at InTune Outsourcing, we navigate this conundrum with the use of high-end accounting tools and software, which take into account specific due dates on each invoice, and prepare an accurate aging report and payment schedule so our clients have an eagle’s eye view of upcoming payments and balances. With an approval process in place, our team also work closely with our clients’ staff so no one makes a bad payment again, which may put great business relationships at risk of going sour.

Are you looking for an outsource partner to handle your company’s Accounts Payable department or bookkeeping? Call us or email us today to find out how we can help your business grow.
Every SME Can Become Large
InTune Outsourcing - Creating Financially Driven Businesses and Entrepreneurs.
Every SME Can Become Large
InTune Outsourcing - Creating Financially Driven Businesses and Entrepreneurs.

About InTune Outsourcing Services

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InTune Outsourcing was founded in 2007 as an outsourcing and business consultancy firm geared to the needs of small and medium sized enterprises.

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About InTune Outsourcing Services

Quick Link

Facebook


InTune Outsourcing was founded in 2007 as an outsourcing and business consultancy firm geared to the needs of small and medium sized enterprises.

Find Out More About Us


About InTune Outsourcing Services


InTune Outsourcing was founded in 2007 as an outsourcing and business consultancy firm geared to the needs of small and medium sized enterprises.

Find Out More About Us

Facebook