Aging and finance charges are an important component of your accounting practices.
Aging Accounts
It is important to understand how accounts are aged in R.O. Writer so that the Accounts Receivable process works the way you, the user, intends. When a charge is made to accounts receivable from a repair order, the date the repair order is closed is entered as the transaction date, the first statement sent date, and the last statement sent date. When the first statement is sent, the date is entered in the First Stmt Sent (Aging) field, and a check mark is entered in the Stmt Sent field. This will begin the aging process for the charge. The age of the account is based on the date of the first statement or the date of the transaction, depending on the selection in Setup.
Finance Charges
Finance charges are not charged on finance charges, just the outstanding balance of other charges. To calculate finance charges, the number of aging days is compared to the number of days configured to begin finance charges. If the aging days exceed the number of days specified in Setup, then the finance charge calculations will begin. The next important date is the Last Stmt Sent date.
To calculate the finance charges, the amount of time between the current date, or the date when the current statement is prepared, and the Last Stmt Sent date are compared and the number of days between the two is calculated. This number is divided by the number of days that was entered in the Setup to start finance charges. If the product is smaller than 0.5, the number is rounded down to 0, but if the product is 0.5 or greater, the product is rounded up to 1. Similarly, if the product is 1.49, the number is rounded down to 1, but 1.50 is rounded to 2.
For example, if the statements are run on July 1st, and the date the last statements were run was June 16th, the elapsed time would be 14 days. If the number of days to begin finance charges is 30 days, the product would be 14/30, which is less than 0.5, so the number would be rounded down to 0, and no finance charges would be included. If, however, the last statements were run on June 15th, the product would be 15/30, or 0.5, which would be rounded to 1.
The product that is calculated is multiplied by the periodic rate. That product is multiplied by the outstanding balance of the charge to calculate the finance charges.
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Calculation for finance charge is:
(Today's date - Last statement date) / 30 = number of months
Number of months * finance charge % in set up = finance charge
(It has to be at least 15 days from date of last statement to calculate finance charges.)
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To demonstrate aging and finance charges, assume that a customer incurred a charge on June 9th of $100. Statements are run on June 15th. On July 1st, statements are again run. The number of days to begin finance charges is 20 days, and the periodic rate is 1.5%, and the aging is based on the date of the charge.
| Setup Configuration | Calculations | ||
|---|---|---|---|
|
Finance Charges |
1.5% |
First Statement |
No calculations - Date entered as First and Last |
|
Begin Finance Charges |
20 days |
(June 15th) |
Statement date and Statement date box checked. |
|
Age Charges based on |
Date of charge |
||
|
Second Statement |
Calculate Aging: |
||
|
(July 1st) |
July 1st - June 9th = 22 days |
||
|
Assumptions |
22 – 20 days |
||
|
Date of Charge |
June 9th |
Calculate Finance Charges: |
|
|
Date of First Statement |
June 15th |
Number of elapsed |
15 (June 15th to July 1st) |
|
Date of Second Statement |
July 1st |
days |
|
|
Amount Charged |
$100 |
Product |
1 (15/30 = 0.5 rounded to 1) |
|
Finance Charge Rate |
0.015 (1 X 1.5%) |
||
|
Finance Charges |
$1.50 (0.015 X $100.00) |
||
Using the same scenario except aging the account based on the statement date, the calculations would be as follows:
| Setup Configuration | Calculations | ||
|---|---|---|---|
|
Finance Charges |
1.5% |
First Statement |
No calculations - Date entered as First and Last |
|
Begin Finance Charges |
20 days |
(June 15th) |
Statement date and Statement date box checked. |
|
Age Charges based on |
Date of statement |
||
|
Second Statement |
Calculate Aging: |
||
|
(July 1st) |
July 1st - June 15th = 16 days |
||
|
Assumptions |
16 – 20 days |
||
|
Date of Charge |
June 9th |
No Finance Charges |
|
|
Date of First Statement |
June 15th |
||
|
Date of Second Statement |
July 1st |
||
|
Amount Charged |
$100 |
||
This calculation is applied to the outstanding balance of every charge, except finance charges, to calculate the total finance charges to be applied to the account. And remember that the Aging Report will show the age of the charges based on the selection criteria entered in Setup.