Aged Accounts Receivable vs Average Collection Period or Days Sales Outstanding (DSO)

practice management
1

The “Firm Financials: Overview” incorrectly labels Average Collection Period or Days Sales Outstanding (DSO) as “Aged Accounts Receivable.”
DSO = (Average Accounts Receivable ÷ NOR) × 365

This yields the average number of days it takes to collect payment.

Aged Accounts Receivable, by contrast, is a report or breakdown that categorizes unpaid invoices by age brackets (e.g., 0–30 days, 31–60 days), and is not a time-based metric.

2

Hi @aidenjh,

Thanks for your question! You are correct in that aged accounts receivable refers to unpaid invoices, however, it is measured in time (average days) between the date of outstanding invoices and the day of payment received.

Per page 418 of The Architect’s Handbook of Professional Practice (AHPP), the formula for aged accounts receivable:

average annual accounts receivable / (NOR / 365 days) = calendar days before payment is received

Hope this helps!

Kiara Galicinao, AIA, NCARB
Black Spectacles

3

The AHPP is incorrect in its usage of that term.
In the larger world of business accounting, Aged Accounts Receivable is a report showing aged receivables in bracketed groups for risk analysis. The standard metric for the average calendar days before payment is a DSO metric.

You are correctly quoting the AHPP, and, unfortunately for us, we all should memorize this flawed term since the ARE is probably going to use it, however this is definitely not correct usage in business accounting.

Just do a Google search for “Aged Accounts Receivable Report” and you will immediately see what I’m talking about.

4

Hi @aidenjh,

I understand your concern and frustration. It can be difficult to separate ARE content from other factors/considerations, however, it is important to remember that you need to answer questions from the NCARB standpoint in order to succeed on the ARE. This is why we align our study materials directly with the objectives and resources outlined in the ARE 5.0 Guidelines - to ensure that you are studying the necessary content to pass the exam. AHPP is a primary resource for PcM and while the terms used may not align directly with what you’ve seen in other scenarios, be sure that you are understanding the way that they are presented in the architectural practice management context.

Kiara Galicinao, AIA, NCARB
Black Spectacles

5

You are probably right about that. It is an uneasy feeling to not know if the ARE will be based on correct information or not. I put a request to NCARB to review this issue. I hope they can resolve it and then make sure everyone is made aware of the correction.

6

@aidenjh I hear you and it totally is a tricky balance between NCARB standards and our own experiences. Try not to get caught up in this battle and remember that in order to pass the ARE, you need to provide the answers NCARB is looking for. The more practice questions you do, you’ll get the hang of it.

Kiara Galicinao, AIA, NCARB
Black Spectacles