What is an Aging Schedule? - YouTube

Let's talk about aging the accounts receivable.  

So why do we do this? Well, over time it  becomes less likely that will end up collecting  

receivables. As we get further and further  away from when the money was originally due,  

it becomes less likely that will actually  receive that money from our customers.

And companies need to be able to plan for that.  That's why they can create what's called an aging  

schedule. An aging schedule will give a company  a better estimate of their uncollectable amounts.  

So we've talked about how a company could estimate  

their total uncollectable amount by a certain  percentage of the total accounts receivable.

Right, we could just say  seven of accounts receivable,  

but that's not always the best way to estimate  this number because that applies the same  

percentage to every dollar. No matter when it  was originally, do an aging schedule, however,  

will allow you to use higher percentages for the  amounts that are further past their due date.

So let's take a look at an example  problem on January 31st, 2020 to read  

company has accounts receivable of $190,000.  That's the total balance in that account.  

The credit terms for the company are 210 net 30  company uses the percentage of receivables basis  

for estimating uncollectable amounts. The  company's aging schedule is shown below.

So we'll take a look at that  here in a little bit. But then  

with that information in the aging schedule, we  are going to need to determine the total estimated  

uncollectable amount on January 31, 2022. So  now let's take a look at this aging schedule,  

we can see that we have separated the  accounts receivable into different groups.

Depending on if the money is past due and how  much past due it is. Then there's different  

percentages. That's saying that we're estimating  that 2% of the $120,000 of accounts receivable  

currently not passed, it's due date. 2% of that  will eventually become uncollectible. And as  

we move down this aging schedule, notice that it  becomes more likely that it will be uncollectable.

If someone hasn't paid in two months  since this money was originally due.  

There's a good chance that  they just aren't going to pay.  

Right, so that's why we see that percentage  increase as we move down the table. So  

we're gonna use this table to figure out  the total estimated uncollectable amount.

But how are we gonna do that? So we need to use  these numbers from up above and just work on it  

row by row. So working first with just the current  account, there's $120,000 in that balance, 2% of  

that will become uncollectible. So let's just  multiply those together, so 120,000 times 0.02.

We are estimating that 2400  dollars will become uncollectible  

and then we just keep doing that for each row. So  

1 to 30 days past two that had a balance of  27,00, 5% of that will become uncollectible.  

So we're estimating that one $350 will  become uncollectable from that group.

31- 60 days past due, we take the 18,000 multiply  it by 15%. We get 2700. 61- 90 days past two  

we take the 16,000 multiply it by the 30%. We  got 4800 and then our last group, 91 plus days  

past due, $9000, 55% will become uncollectible. So  we multiply those two together and we get 49 50.

So we found the amount for each of these groups.  

But the company wants to know what the total  estimated uncollectable amount will be.  

Well, whenever we have a total, that means we need  to add stuff up our total estimated uncollectable.  

Let's just add up all these  numbers that we just found.

That's going to tell us that we are estimating  that $16,200 will become uncollectible.