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Simple English definitions for legal terms
aging of accounts
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A quick definition of aging of accounts:
Aging of accounts: This is a way of organizing the money that people owe a company based on how long it has been since they were supposed to pay. This helps the company figure out how much money they might not be able to collect in the future.
A more thorough explanation:
Definition: Aging of accounts is a method used to categorize accounts receivable based on the length of time they have been outstanding. This process helps estimate the amount of uncollectible accounts as of a specific date.
Example: Let's say a company has several outstanding invoices from different customers. The aging of accounts process would involve categorizing these invoices based on how long they have been unpaid. For instance:
- Invoices unpaid for less than 30 days
- Invoices unpaid for 31-60 days
- Invoices unpaid for 61-90 days
- Invoices unpaid for more than 90 days
By categorizing the invoices in this way, the company can estimate how much of their accounts receivable may be uncollectible. For example, invoices that have been unpaid for more than 90 days may be considered more likely to be uncollectible than those that have been unpaid for less than 30 days.
The aging of accounts process is important for companies to manage their cash flow and ensure they have accurate financial statements.