Aging of accounts receivables

Aging of accounts receivables classifies the accounts according to their number of days
outstanding. It has the following advantages:

 It tracks down receivable balances.

 It serves as an analysis sheet to study receivable balances according to their
“age” as either current account or past due account.
 It gives an idea of which accounts are "moving" and which are "not moving by
doing a supplemental analysis of the long past due accounts.
 It is a reasonable technique of estimated doubtful accounts expense.

Internal control for receivables - the "revenue-receipt cycle”

To protect the amount of investment in receivables, a firm should provide an accurate

and reliable accounting report on receivables, promote operational efficiencies on credit
and collection systems, and encourage adherence to prescribed managerial policies,
there are receivables internal control principles to be observed. To appreciate these
control systems, let us revisit the operating process of the revenue-receipt cycle.
 Revenue-Receipt Cycle

Sale of merchandise
Receipt of sales order
Inspection of merchandise and preparation for delivery
Delivery time
Customers’ acknowledgement of merchandise received

Periodic accountability
Accountability of records and entries Recording of sales
Preparation of sales reports Delivery receipts or on-line entry
Schedule of official receipts issued Supplemental notes
Schedule of subsidiary account receivables
Account receivable control balance
Aging of account receivable

Receiving collections
Sending of billing statement
Issuance of official receipt collections
Sending of billing statement
Issuance of official receipt
Receiving collections
Based on the operating process of receivables and keeping in mind the cardinal
principles of internal controls, the following specific internal controls for revenue-receipt
cycle are developed:

 Functional responsibilities must be segregated where top management

authorizes the sale or a product or product line, the sales department makes the
sales, the accounting department does the recording, the cash department
receives collections, and the auditing department checks the transactions.
 Sales order slip, delivery receipts, official receipts, and billing statements should
be pre-numbered and multi-copied.
 Deliveries of merchandise to customers should be supported by a written
authority to ship the goods (e.g., sales delivery slip)
 Proper documentation of merchandise shipment should be ensured to assure
accuracy and accountability.
 Merchandise should be insured, especially when in transit.
 Delivery receipts should be signed by customers.
 Efficient and effective billing system must be in place.
 Sales reports should be prepared regularly.
 Daily cash reports should always be made.
 Account receivable subsidiary ledgers should be periodically reviewed and
totaled.
 Receivable confirmation letter should be regularly sent to customers.
 Account receivable should be regularly aged and analyzed
 Accounts should be written-off after exhausting all possible collection efforts and
possibilities. Accounts receivable ledges should always be updated.