Accounts Receivable AR Aging Summary | Edmonton Bookkeeping
Hi, thanks for tuning in for another episode of assets for all CPA. Today we’re talking about your accounts receivable aging summary. I have me here with me again, many thanks for joining us again. And the main just made it through her first, uh, t four p five season.
It was extremely busy, a lot of hard work, but I cannot wait to do it again for next year. Excellent.
So the quote that we have for you today, it’s Mike and verbal quote. You know, author fevered e-myth here, people who are exceptionally good in business aren’t so because of what they know, but because of their insatiable need to know more. Uh, the statistic that we’re always trying to solve here are 50% of kidney and small business go out of business. Uh, and one of the top three reasons why that happens is they simply run out of cash. And then the story that we have are business owners who, you know, they’re depending on collecting from their customers to pay their bills, meet payroll, you know, not running a cash and become a statistic, but they don’t have confidence in that accounts receivable, aging summary and quickbooks. And that makes it more difficult to collect, uh, because they don’t have that balance at hand that they can use to, you know, call it to clients and collect efficiently and provide statements, issue statements to clients. Don’t wait to be in a bind. Call our Edmonton Bookkeeping today and be proactive. Um, so it’s, it comes down to that reliability, that accounts receivable, aging summary, you know, it increases the efficiency of your collections. So May, what are the questions you think the business should be
be asking? Well, what is an account receivable or an account receivable? Aging summary?
Yeah. So the accounts receivable or a ar aging summary is effectively a list of all the customers who owe you money. Uh, and then it lists what amounts they owe from what time periods, and then it totals the amount that each customer or always you. Don’t owe on things you shouldn’t, find a Edmonton Bookkeeping service today. Um, and then it totals, you know, a grand total at the end. And what all the customers always. So more specifically if you’re looking at the sheet on the far left hand side and list all of the customers who owe you money and then it’ll happen the next call and it’d be all the customers who owe you money but aren’t passed dude. So we’ll call it the current column. And then we have, you know, call column. The next column is all the customers that owe you money, but they’re one to 30 days past due. And then the next column, all the customers who are your 30 to 60 days past due after that, that all the customers that will you 60 to 90 days past due. And then after that, all the amounts owed that are 90 days or more past dues. So, um, again, it lists all the customers at the end and in what amounts they owe from what time periods. And finally at the end it has a total of what each customer owes you and they get in reaching your grand total at the bottle.
And why your accountants always skeptical of items in the 90 days past due column.
Yeah. Most contractual arrangements don’t provide for 90 days to pay the person. So most contractual or more than 90 days. So contractual arrangements already, you know, their, their net 30 type terms. So you have to pay them within 30 days. You know, sometimes it’s 60 days, you’ve got 60 days to pay, sometimes you get 90 days to pay even. But it almost is never more than 90 days. So when we see an amount that’s, you know, that a customer is old for more than 90 days, now we start to wonder, are they ever going to pay it? Um, you know, the likelihood of them pain starts to go down because they’ve usually broken there, the contractual terms and now it’s, you know, is it worth litigating? You know, maybe there’s a reason why they didn’t pay. They weren’t happy with the work. Um, but in any event, you know that that amount is, is, you know, the collectability of that amount is now in question. We know you will be happy with our work at our Edmonton Bookkeeping service at Spurrell and Associates.
What does a negative number in account receivable aging summary me?
So a negative number and accounts receivable, aging summary and means that someone has prepaid, it’s like a deposit. Um, so this is an impossible, but it’s, it’s out of the norm. So the norm is, you know, someone, you do work for someone and you create an invoice, you build them at that time, then you have a positive ar. So you do $1,000 a work and you have $1,000 showing in your ar aging summary under the, under the current call, uh, for that customer. And then that person issues you payment. And that creates kind of a negative a thousand dollars in that, in, in the, in the sub ledger in the background. And then it goes to zero. So it starts at positive a thousand, then we minus a thousandth, then it goes to zero. And that’s the normal sequence of events. But there’s nothing to say that the posit cannot precede the work being done.
So they can make a payment before, um, or maybe they’ve made an overpayment from another period. You know, they, they owed a thousand and they paid 2000. Um, so that creates a negative amount, but it effectively means that a payment has been made for work that’s not yet done. So this isn’t impossible, but you should have a good understanding of it. When you’re looking at your ar aging summary. If it is a negative number, did I really didn’t get a deposit? Did they get an overpayment? Um, if not, you know, we’ve got something. We got it. We should look into. Should you be
skeptical of round numbers in the Ar aging summary?
Yeah. Round numbers in the Ar aging summary, you know, sometimes their estimates or accruals or some sort of journal entry or a placeholder analysis, not impossible. It’s fine. But, um, you know, it often those round numbers and the Ar aging summary, we have to be skeptical and we have plus $10,000. You know, what was the last time you did a project and you’ve sent a bill for exactly $10,000? No pennies. No single dollars. Just exactly. Okay. Um, you know, what was the reason for this? Um, it’s not impossible, but it should draw your attention to it. And you should have a very quick and simple explanation. Finding a great Edmonton Bookkeeping service will help you with this. And if you don’t know, lots of times it’s, it’s not an actual amount.
And should you be skeptical of shareholder or related party amounts in the summary?
Yeah. Yeah. They, the, they shouldn’t be there really. I’m really, if you have a shareholder or related party mouse, first of all, you’re definitely going to have a shareholder loan account. So there’s no need to have a Cheryl the loan account with some of the transactions in and then convolute your accounts receivable account with other shareholder mounts. Keep all of the shareholder transactions in and out in the shareholder account. Just have one balance and then it comes to the related party. Really, if this is a related party, you know, a corporation where no husband on one’s core, white phones, other core core, no, both courts are owned in the same household and that related party should have its own account. It, again, it shouldn’t be, it shouldn’t be a convoluted with other, you know, ar accounts receivable amounts from, uh, you know, arms length customers. So there’s no reason to create that sort of complexity. Uh, those amounts need to be separated. They shouldn’t be showing on your summary or in the Er. Um, er account.
Should you be skeptical? Payroll or see our AML is in the summer. Yeah.
Same thing. You got payroll accounts that they have their own accounts. We have a payroll liability accounts. We have an employment expense account. Um, we can have an accrued payroll account. They shouldn’t be in your ar summary. Um, there’s no reason to take the amount. Um, you know that you overpaid from Cra and, and stick it in your accounts receivable aging list. It doesn’t belong that you already have a payroll account. Edmonton Bookkeeping is incredibly important for your business Um, you use it to deal with all the payroll amounts, one running balance all the time. Nice and simple. Um, that’s the way to handle it.
Didn’t all amounts relate to actual cash expected to be received?
Yeah. So if you see a positive number on that ar aging summary, um, you, you gotta ask yourself, is this an actual number that is going to be, you know, received in cash. At some point they’re going to write me a check. They’re going to give me their credit card information, they’re going to drop off the physical cash, whatever it is. And when you look at that positive number on the l, the Ar aging summary and the accounts receivable, aging summary is this, there are real amount that’s going to be collected in cash. If not, we’ve got to make a correction.
And what does it mean when you see a positive and a negative amounts for one customer?
Yeah, so you’ll have, let’s say you have a customer, a, you know, Mr and Mrs. Smith or our customer a and then in the current column they have plus $1,000, but then in the, you know, 30 days past due call in 30 to 60 days past due to all, they have a negative thousand dollars. You should just means we haven’t made that payment and applied it. So, uh, the, the accounting software, it and the, it’s not just, you have to book the receipt, but you also have to apply that payment to a specific invoice. And if you don’t, it’ll just create like a positive and negative and they’ll show up. It also could just create a zero. Sometimes you’ll see Mr and Mrs. Smith sit on there and their mouth is just zero. That means the positive and negative just occurred in the same period. And so they’re not, it’s not clearing them off the list because it still shows that one balance is only, but they have an offsetting, you know, negative so that the total is zero. But um, yeah, so you have to record in the most accounting software that you received it and at that particular payment applied to a particular bill
can getting the account summary in real time every time you receive payments.
Yeah, you can 100% updated in real time every time. So it’s probably the, the um, the starting point of what most customers need from their bookkeeping software. You know, even if they’re not booking every individual transaction in real time, you know, that can be a little bit overkill, but just using that bookkeeping software that every time they, they bill a customer at the invoice, a customer, you can import the invoice. I know it takes just as long. Often with the dropdown menus, you can build into quick books of your different items in your pricing lists. And you know, it can be even quicker. You can have custom messages and you can use the software to even email the invoice out to the customer, uh, with a link for them to pay it online. Even. So it’s usually, you know, even quicker to do the invoicing quickbooks, if you got any sort of scale on the, on the amount of invoices that are going out.
So, uh, that can 100% be done. And then when they received the payment, you don’t know, there’s no reason why you can’t book the receipt of that payment going into quickbooks. I would say you’re either in the position where you shouldn’t be using the quickbooks for either, but if you’re using the quickbooks for your, to do your invoices, you should be using the quickbooks to record the receipt of payment. So it’s kind of one or the other aid don’t necessarily need it. If you’re super small, you can just use an excel invoice or, or whatever. That’s not a lot of transactions that you feel you’re managing it. But if you feel it, you know, becomes cumbersome and tracking who owes you what, you know, you should be using the quickbooks software, not just to create the invoice but to book the receipt of payment. And you know, it’s a, it’s a skill that can be taught, you know, relatively quickly. There’s a lot of things in bookkeeping software and accounting software or it’s, you know, very difficult or very time consuming to teach people. But that’s not one though. That’s one that can be taught to almost anybody or you know, talk to someone on your staff very quickly. Then you can get a raw or real time reliable list of who owes you what money. And at any given time,
once you have a reliable ar summary, how often should you reached out to the car?
So I, I’m going to set some thresholds are, so if you’re not doing it monthly, your chance to collection is going to go down dramatically. Now that is the bare minimal monthly. Uh, I would suggest that something that you should be doing every time you do your accounting processes. So most people pay, you know, biweekly. If you’re paying your employees biweekly, you got to go in, you’ve got to reconcile the bank accounts, you got to see what payments come in, see what funds are available, and then you can run your payroll once you know the funds are available and then you can pay your bills as well. Why not follow up on all the ar on that same schedule? You know, we, we create efficiencies by batching those tasks into, you know, one function. So as soon as your accounts have been reconciled and you’re sure which one’s paint, which payments came in, you’re also now sure which payments are still outstanding.
We should be following up on mobile. So that’s kind of a biweekly basis. That would be even better. And then once the account is, let’s call it in jeopardy, you know, that they’ve, they’re now past due and there, you know, something is making you think that there’s, there’s a problem, there might be problem and collecting it. Maybe you know, that this person is having financial difficulties in their own, um, or you know, there are returning the call saying, Hey, sorry, I’m going to get a two in a week or something like that. You must find a Edmonton Bookkeeping who can really handle your books. Um, you know, daily toward a daily, don’t feel bad about it. You know, you’ve done the work, you know the money is yours. You know, a lot of entrepreneurs think, uh, that’s the, you know, what about the client? I’m going to upset the clients. I was like, this is a client who’s not paying you.
It doesn’t matter if you lose them by definition, they’re no longer a client there. Um, there, there’s someone who owes you money. Um, so you know, they, I would say monthly is the minimum threshold that you absolutely need to fall off or else you have a chance to have, your collectability is going to go down dramatically. And probably a better practice would be biweekly. Every time you do your payroll and payables, it’s still really efficient. Should do it in that sequence. And if there’s any chance of, of nonpayment, go straight to daily, just put them on blast and call them, email them every single day. Um, you know, the, you did the work. Um, they, they agreed to it and now they’re not paying. You don’t feel guilty about it at all. So I think that’s what we have here to for today. Thanks so much for tuning in. Please hit that like and subscribe buttons so we can continue to deliver you a tips and help you beat the odds at business. Um, as always, should you have any questions, hit, uh, leave a comment below and we’ll try to address your queries in a future video. Thanks very much.