Bad debt expense calculator
Under the allowance method a business books the bad debts it expects before customers actually fail to pay. Choose how to estimate them: a percentage of credit sales, a percentage of receivables, or an aging schedule with a higher rate for older balances. Enter the current balance of the allowance, and the calculator shows the expense to record, the ending allowance and the net realizable value of receivables.
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How to use it
- Choose the method: percent of sales, percent of receivables or aging.
- Enter the amounts and rates the method needs.
- Enter the allowance balance before adjustment: a credit balance as a positive number, a debit balance as a negative one.
- Percent of sales: expense = credit sales × rate; ending allowance = existing + expense
- Percent of receivables: required = receivables × rate; expense = required − existing
- Aging: required = Σ (balance of each age group × its rate); expense = required − existing
- Net realizable value = receivables − ending allowance
Worked example
An aging schedule with 60,000 not yet due (1 %), 25,000 at 1–30 days (5 %), 10,000 at 31–90 days (15 %) and 5,000 over 90 days (40 %), and 1,200 already in the allowance:
- Required allowance = 600 + 1,250 + 1,500 + 2,000 = 5,350.00, or 5.35 % of receivables.
- Bad debt expense = 5,350 − 1,200 = 4,150.00.
- Net realizable value = 100,000 − 5,350 = 94,650.00.
With 1 % of 500,000 credit sales the expense is 5,000.00 and the allowance grows to 6,200.00.
Tips
- Base the rates on your own collection history and review them every period.
- Writing off a specific bad debt reduces the allowance and receivables, not the expense, under this method.
- Tax rules on deducting bad debts differ by country; this calculator covers only the accounting estimate.
Frequently asked questions
How do you calculate bad debt expense?
With the percent-of-sales method, expense = credit sales × rate: 500,000 × 1 % = 5,000. With the percent-of-receivables or aging methods you first find the allowance you need, then expense = required allowance − the balance already in the allowance.
What is the aging method?
Receivables are split by how long they are overdue and each group gets its own uncollectible rate. 60,000 at 1 %, 25,000 at 5 %, 10,000 at 15 % and 5,000 at 40 % call for an allowance of 600 + 1,250 + 1,500 + 2,000 = 5,350.
Why does the existing allowance matter?
The balance-sheet methods set the allowance to a target. If 1,200 is already there, only 5,350 − 1,200 = 4,150 is booked as expense. If write-offs left a debit balance of 300, enter −300 and the expense becomes the target plus 300.
What is net realizable value?
Receivables minus the allowance: what the business expects to collect. With 100,000 of receivables and an allowance of 5,350 it is 94,650.