Definition
An aging report groups each customer's open invoices into buckets such as current, 1 to 30, 31 to 60, 61 to 90 and over 90 days past due. Its total should equal the accounts receivable control account in the general ledger. Management often applies loss rates to each bucket as part of estimating the allowance for credit losses under ASC 326-20.
Why it matters in an audit or review
The aging is the population for confirmations and for the allowance test. The auditor first checks that it foots, agrees to the ledger and ages invoices from the correct date, since a report built on the wrong date understates old balances. Credits, unapplied cash and disputed items are reviewed because they affect both the aging and the allowance.
Example
Illustrative: receivables of $1,000,000 are current $600,000 at 1%, 1 to 30 past due $200,000 at 3%, 31 to 60 $100,000 at 8%, 61 to 90 $50,000 at 20% and over 90 $50,000 at 50%. The allowance is $6,000 + $6,000 + $8,000 + $10,000 + $25,000 = $55,000, or 5.5% of the balance.
Common mistakes
- Failing to reconcile the aging total to the ledger before using it.
- Applying historical loss rates without considering current conditions and forecasts.
Sources
- FASB ASC 326-20, Financial Instruments, Credit Losses, Measured at Amortized Cost
- AICPA, AU-C Section 505, External Confirmations
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error