Calculate the allowance for doubtful accounts
Enter receivables by age and expected loss share to see the allowance and bad debt expense.
Allowance for doubtful accounts
Book €32,000 of bad debt expense to bring the allowance from €70,000 to €102,000.
Allowance by age
Get the result by email
Set credit limits, payment terms and deposits for each customer with rules that read customer data and payment history the same way every time. Start free
See the formulas
Allowance for doubtful accounts = Σ Receivables × Expected loss share Allowance % of receivables = Allowance for doubtful accounts ÷ Total receivables Bad debt expense = Allowance for doubtful accounts − Allowance on the books Allowance from invoices over 90 days = (91 to 180 days overdue + More than 180 days overdue) ÷ Allowance for doubtful accounts
The expected loss shares are your own, based on past write-offs by age.
Allowance for doubtful accounts
The allowance for doubtful accounts estimates the receivables expected to be lost. Multiply receivables in each age group by your expected loss share, then add the amounts.
For a company that sells on payment terms, the allowance shows the expected loss on receivables. Use it to work out the bad debt expense to book or the amount to release.
Common questions
How do I calculate the allowance for doubtful accounts?
Multiply receivables in each age group by the expected loss share for that age. Add those amounts to get the allowance for doubtful accounts.
What is the aging method for bad debts?
The aging method groups receivables by how long they are overdue. You apply an expected loss share to each age group and add the amounts.
How is bad debt expense calculated?
Subtract the allowance already on the books from the allowance supported by the aging. If the difference is below zero, it is an amount to release.
What is the percentage of receivables method?
It expresses the allowance for doubtful accounts as a share of all receivables. Divide the allowance by total receivables to calculate that share.
How do I work out the adjusting entry for the allowance?
Compare the allowance supported by the aging with the allowance already on the books. The difference is the bad debt expense to book, or an amount to release when it is below zero.