The AR aging report
Northwind's year-end aging, built by due date and tied to the ledger, and the two numbers read off it: DSO for the trend, CEI for the collections effort.
The aging is the AR subledger read on one date, each open invoice placed by how many days it is past its due date. At December 31 Northwind has 4 open invoices worth $22,900, and 61% of it is past due.
Wrong
Days since the invoice was issued.
Right
Days past the due date, which the terms set.
Aging from the invoice date makes every Net 30 invoice look a month late on day 31. INV-1005 is 50 days past due, not 80.
In this lesson: the aging is the list. The two numbers read off it, DSO for the trend and CEI for the collections effort, are worked on the page below. The same buckets set the allowance in the bad debt lesson.
Age by due date, tie the aging to the control account, then read DSO and CEI. A metric off an aging that doesn't tie is a guess.
Pages in this lesson
1 page goes deeper, about 6 minutes in all. Read them in order, or open the one you need.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- US GAAP
- ASC 326-20-30-3 (opens in a new tab)An aging schedule is an accepted way to estimate the allowanceFree after registration
- Background reading — not an authority
- Wikipedia, “Days sales outstanding” (opens in a new tab)Days sales outstandingFree to read
The full map is in US GAAP, and where these rules come from.
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- AgingGrouping open receivables or payables into buckets by days past due date — current, 1–30, 31–60, 61–90, 90+
- DSODSO is a liquidity and working-capital metric, calculated as (Ending AR ÷ Credit sales for the period) × Days in the period.Convention
- CEICEI is a liquidity and working-capital metric, calculated as (Opening AR + Credit sales − Closing total AR) ÷ (Opening AR + Credit sales − Closing current AR).Convention
- Receivables turnoverReceivables turnover is a liquidity and working-capital metric, calculated as Credit sales ÷ Average AR.Convention
- Control accountA GL account whose balance is the total of a subledger — AR, AP, fixed assets — and is posted only from itConvention
- SubledgerThe detail, by customer, vendor or asset, whose total must equal its control account in the GLConvention
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.
See also
- Order to cash (AR)The receivables stack from quote to revenue: quote → order → fulfillment → invoice → collection → cash application → revenue.
- Metric definitionsEvery metric in this system ships with its formula, period, inputs and source. A KPI without a definition is a number people argue about in meetings.
- Payment terms & due datesDue dates from payment terms, and whether an early-payment discount is worth taking.
- DSO calculatorDSO is a liquidity and working-capital metric, calculated as (Ending AR ÷ Credit sales for the period) × Days in the period.
- Collection effectiveness index calculatorCEI is a liquidity and working-capital metric, calculated as (Opening AR + Credit sales − Closing total AR) ÷ (Opening AR + Credit sales − Closing current AR).
- Receivables turnover calculatorReceivables turnover is a liquidity and working-capital metric, calculated as Credit sales ÷ Average AR.
- DSO vs DPODSO counts the days of sales customers haven't paid for yet. DPO counts the days of purchases the company hasn't paid for. With inventory days, they make up the cash conversion cycle.
- AR aging and collections: a practical guide for startupsHow to read an AR aging, work out DSO, run a dunning cadence, record a promise to pay, escalate a late account and clear unapplied cash.
- AgingTableAR/AP buckets, 0-30-60-90+.
- MetricDefinitionEvery metric requires one. Formula with values substituted.
- CustomerStatementPrintable. Print styles are first-class.