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What is the meaning of aging?

In accounting the term aging is often associated with a company's accounts receivable. Accounts receivable arise when a company provides goods or services on credit. For example, a company may allow its customers to pay for goods or services 30 days after they are delivered. If customers do not pay as agreed, the company could experience a cash problem.

In order for the company to minimize its cash flow problems and potential losses from customers who are unable to pay, companies will routinely prepare an aging of accounts receivable. The aging report will list each customer's outstanding balance and will then sort the total amount into columns such as: Current, 1-30 days past due, 31-60 days past due, 61-90 days past due, 91-120 days past due, and 120+ days past due. The aging of accounts receivable allows managers to quickly see which customers are behind in meeting the agreed upon terms. An aging is usually a standard feature of accounting software.

Some companies also do an aging of accounts payable. This aging sorts the accounts payable amounts by due dates.