classification of accounts receivable, inventory, or loans by the time intervals they are held. In a loan portfolio, agingshows the distribution of accounts from the date they are acquired, and is an indication of overall asset quality or probability of repayment. Aging of accounts also reveals delinquency patterns, for example, any loans past-due 30 days, 60 days, 90 days or more-a useful guide in planning collection efforts. Loans 90-days delinquent are listed as nonaccural loans, which means the bank is no longer posting interest due on the income statement. If this situation persists these loans may have to be charged off as bad debt.
In asset-based lending, aging of accounts is a listing of accounts receivable by invoice date, and is used in determining the borrowing base of eligible receivables against which funds are advanced.
classification of trade accounts receivable by date of sale. Usually prepared by a company's auditor, the aging, as the schedule is called, is a vital tool in analyzing the quality of a company's receivables investment. It is frequently required by grantors of credit.
The aging schedule reveals patterns of delinquency and shows where collection efforts should be concentrated. It helps in evaluating the adequacy of the reserve for bad debt, because the longer accounts stretch out the more likely they are to become uncollectible. Using the schedule can help prevent the loss of future sales, since old customers who fall too far behind tend to seek out new sources of supply.
