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You have just been hired as the Accounts Receivable accountant for a small cleaning business. You...

You have just been hired as the Accounts Receivable accountant for a small cleaning business. You ran the month end balance sheet out of the accounting system and see the AR balance is quite large and there is no allowance account. How would you begin your review of AR? What steps would you take to analyze the balances?

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Answer #1

Review of accounts receivable account

  1. Obtain the ledger dump from the system along with due date.
  2. Prepare aging analysis based on due date.
  3. Review previous periods bad debts account to understand the recoverability of old balances.
  4. Based on the above analysis discuss and propose allowance for bad & doubtful debts.
  5. Obtain ledger balances from customers and perform reconciliation.
  6. Discuss and propose appropriate cash discount for early payments to improve cash flow. Use ratios (ex: A/R turnover ratio) for this discussion with the management.
  7. Evaluate what all steps are being taken to recover the amount and will strengthen the same.
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