Aging in Accounting: (AR Aging & AP Aging Explained) Example

When will we be paid? How long has it been outstanding? Those are two questions that many business owners ask themselves and their teams. Luckily by understanding aging in accounting, businesses can have an idea of how long payments have been outstanding.

We’re going to help explain aging in accounting by looking at both accounts receivable and accounts payable.

man looking at accounting spreadsheets

What is Aging in Accounting?

Hopefully, you already have an understanding of how to account for accounts payable and receivables at a beginner level. If not, pause here and do a refresher on each of these. We’re going to look at a little bit more advanced topic in just a second.

Aging in accounting is a report which helps you understand how long receivables have been outstanding and how long payables have been outstanding. Of the two, accounts receivable aging is much more commonly used since it has an impact on the monies received.

Let’s take a look at accounts receivable(“AR”) aging to start.

Accounts Receivable Aging (Explained)

Aging in accounting refers to the process of categorizing unpaid invoices and bills according to the length of time they have been outstanding. We have an accounts receivable aging report sample below but here are some of the most important items shown.

An AR aging report might show:

  • The business name for each invoice
  • The name of a contact for the outstanding business
  • Invoices that are 0 to 30 days overdue
  • Invoices that are 31 to 60 days overdue
  • Invoices that are 61 to 90 days overdue
  • Invoices that are over 90 days overdue

There are a few reasons why business owners would want to see this information. They could quickly see what customers are not paying their bills. The accounting department can follow up on long outstanding AR.

Businesses may even have to make the decision to write off AR that is outstanding for long periods of time if it becomes uncollectible. These uncollectible receivables are called bad debt.

Read More:

Accounts Payable Meaning, Examples and Accounting Definition

Accounts Receivable Aging Report Example

accounts receivable aging report

Luckily if you aren’t too familiar with an accounts receivable aging report, we’ve made up a sample report for reference. It is pretty basic but you can expect a similar format in a business or with a QuickBooks aging report.

The key thing to notice and keep in mind are the invoices that are lagging past 30 and 60 days. Once you have identified the businesses, it is time to analyze accounts receivable aging.

Analyzing Accounts Receivable Aging

Now is the time to ask yourself some questions. 

  • Is the company with an outstanding invoice a repeat offender or is this the first time that they are over 30 days outstanding payment to you?
  • Is the economy in a downturn and is there a reason for the late payment?
  • How big is the outstanding amount? Is it worth collecting?
  • Do you have a contact on file to follow up and is the cost vs benefit worth the time to follow up?

These are just a few of the things you or the team needs to be asking when analyzing an AR aging report. Now let’s look at accounts payable aging.

Accounts Payable Aging: What is It?

accounts payable aging report

Accounts payable (“AP”) aging is a bit less commonly used because businesses want to know when they will be paid. There is good reason to use an AP aging schedule as well though.

It is useful to show when an invoice was received, how old it is, when it is due for payment if a discount will be received and the final due date.

Business owners can use this information to either pay the invoice and take advantage of the discount or delay payment until the final payment date so their cash flows are not as stressed.

You’ll learn about this more in the cash conversion cycle but for now, let’s just stick to the AP aging.

Similarly to an AR aging,  an AP aging report would split out invoices in a fashion like this:

  • Bills that are 0 to 30 days past due
  • Bills that are 31 to 60 days past due
  • Bills that are 61 to 90 days past due
  • Bills that are over 90 days past due

Read More:

Double Entry Accounting is A Must Know| Here is the Meaning

A Recap on Aging in Accounting

Aging, more specifically accountants receivable and payables is something every business should monitor. There are two major points to takeaway:

  • Aging reports break down how long accounts receivable have been outstanding and how long accounts payables have been due.
  • You can analyze accounts payable aging to make business decisions.

Final Thoughts on AR and AP Aging

Some businesses will need to monitor their aging schedules much tighter if they are short on cash or have a large volume of receivables. If receivables are all being paid timely then an aging schedule might not seem as important but it is.

Don’t lose sight of your collections or payments, businesses depend on them!

Leave a Comment

Your email address will not be published. Required fields are marked *

Shopping Cart