[barelystayingsane]

An explanation to a Becker question says “The aging of AR does not affect the overall receivable balance and therefore would have no effect on AR turnover.” My brain has totally shut down for the night, so I may be messing up something super rudimentary, but wouldn’t the aging schedule affect the allowance for doubtful accounts balance, which would in turn affect net AR, which would then affect the AR turnover ratio?

Thanks!

[mla1169]

It can affect the allowance for doubtful accounts but not necessarily, that's a judgement call. But the process of the A/R aging doesn't affect net AR, its another step that does that. HTH.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

It can affect the allowance for doubtful accounts but not necessarily, that's a judgement call. But the process of the A/R aging doesn't affect net AR, its another step that does that. HTH.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[barelystayingsane]

Thanks! Are you saying it's a judgment call by management or the auditors?

An explanation in that same question also said that a write-off of an unusually large receivable would reduce the receivables balance and increase the AR turnover. Theoretically, I understand this, but from a journal entry perspective, I thought a write-off would reduce AR and the allowance for doubtful accounts by the same amount, thus resulting in no effect on AR.

I don't understand why I'm having so much trouble with this. I did fine on FAR back in April. 🙁

[barelystayingsane]

Thanks! Are you saying it's a judgment call by management or the auditors?

An explanation in that same question also said that a write-off of an unusually large receivable would reduce the receivables balance and increase the AR turnover. Theoretically, I understand this, but from a journal entry perspective, I thought a write-off would reduce AR and the allowance for doubtful accounts by the same amount, thus resulting in no effect on AR.

I don't understand why I'm having so much trouble with this. I did fine on FAR back in April. 🙁

[mla1169]

Its a judgement call by management but they have to be able to back it up to the auditors.

So for example, the only AR I have, I billed to Acme Corp. in January. It can stay on my AR until its either (a) paid or (b) highly unlikely to be collected.

That invoice could be aged 12 months and I may have reason to believe it is still likely to be collected. So I can leave it on my AR. The auditors ask “why haven't you created an allowance for doubtful accounts for this?” I may be able to justify it by saying “Acme will absolutely pay this as soon as they receive a settlement they've been awarded” (as a silly example).

Some companies take all AR over 90 days and accrue for doubtful accounts. They have to show the auditors that historically if something gets that old they never see the payment.

So 2 pretty extreme examples, but yes its a judgement call.

In your 2nd question, that would only be the case if an allowance had been set up, which is not always the case.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

Its a judgement call by management but they have to be able to back it up to the auditors.

So for example, the only AR I have, I billed to Acme Corp. in January. It can stay on my AR until its either (a) paid or (b) highly unlikely to be collected.

That invoice could be aged 12 months and I may have reason to believe it is still likely to be collected. So I can leave it on my AR. The auditors ask “why haven't you created an allowance for doubtful accounts for this?” I may be able to justify it by saying “Acme will absolutely pay this as soon as they receive a settlement they've been awarded” (as a silly example).

Some companies take all AR over 90 days and accrue for doubtful accounts. They have to show the auditors that historically if something gets that old they never see the payment.

So 2 pretty extreme examples, but yes its a judgement call.

In your 2nd question, that would only be the case if an allowance had been set up, which is not always the case.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[barelystayingsane]

@mla1169 Thanks for your help! Those examples were very helpful. I think my problem was that I erroneously thought that an aging schedule and/or an allowance for doubtful accounts are always set up/prepared, but like you said, that is not always the case.

[barelystayingsane]

@mla1169 Thanks for your help! Those examples were very helpful. I think my problem was that I erroneously thought that an aging schedule and/or an allowance for doubtful accounts are always set up/prepared, but like you said, that is not always the case.

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