Describe what an accounts receivable schedule might look like and why

Describe what an accounts receivable schedule might look like and why a firm may wish to prepare such a schedule.

What will be an ideal response?

ANSWER

The author presents an accounts receivable aging schedule consisting of three columns: Days A/R outstanding (e.g., 1-30 days, 31-60 days, etc,), Amount of AR outstanding (e.g., $50,000, $24,000, etc.), and the Percentage of A/R outstanding for each time period with this column summing to 100% (e.g., 50%, 25%, etc.). A visual representation of the dollar amount and percentages of A/R outstanding gives the manager an immediate picture of how long he/she can expect to wait to get paid for each dollar of credit granted and determine how closely the firm’s credit terms are being met. Further, this schedule can help lead to questions about how the firm compares to industry norms and close competitors in its ability to collect receivables. Such a schedule may also help budget for suspected default on A/R, try to determine the reason for late or non-payment, and adjust their internal definition of credit worthy customers. Such a schedule is inexpensive to prepare, but provides much valuable information and quickly draws the managers attention to potential areas of strength or weakness.