The aging method estimates how much of accounts receivable will not be collected based on how long balances have been outstanding. Apply loss rates to each aging bucket to set the required allowance and the bad-debt expense entry.
How it works
Estimate the allowance for doubtful accounts from an accounts receivable aging and expected loss rates, then calculate the adjusting entry to bad-debt expense.
Required allowance = Σ Balance(bucket) × Expected loss rate(bucket)
Bad-debt expense = Required allowance − Current allowance balance
Net realizable value = Gross A/R − Required allowanceCommon uses
- Month-end and year-end receivable reserves
- CECL (ASC 326) expected credit loss estimates for trade receivables
- Credit and collections reporting
Worked example
The calculator above opens with this example. Change any input to see the results update instantly, or select Reset to return to these figures.
| A/R aging | Current | 1,840,000 | 1.0 1–30 days past due | 620,000 | 3.0 31–60 days past due | 285,000 | 8.0 61–90 days past due | 142,000 | 20.0 91–180 days past due | 96,000 | 40.0 Over 180 days past due | 58,000 | 75.0 |
| Current allowance balance (credit) | $112,000 |
| Required allowance | $170,100 |
| Bad-debt expense to record | $58,100 |
| Allowance % of receivables | 5.6% |
| Net realizable value of A/R | $2,870,900 |
| Gross accounts receivable | $3,041,000 |
Journal entry: Dr Bad-debt expense $58,100 / Cr Allowance for doubtful accounts $58,100.
Interpreting the results
- Derive loss rates from your own historical write-offs by aging bucket, adjusted for current conditions and reasonable forecasts as CECL (ASC 326) requires.
- A debit balance in the allowance before adjustment means write-offs exceeded the prior estimate; revisit the loss rates.
- Analyze large or disputed balances individually rather than through bucket rates.
Frequently asked questions
How is the allowance calculated with the aging method?
Multiply the balance in each aging bucket by its expected loss rate and add the results. The total is the required ending balance in the allowance for doubtful accounts.
How is bad-debt expense determined?
Bad-debt expense is the amount needed to bring the existing allowance up to the required balance. If the allowance already exceeds the requirement, the difference is released, reducing expense.
How does CECL affect the aging method?
Under ASC 326, entities estimate expected lifetime credit losses. An aging schedule remains an acceptable approach for trade receivables, but historical loss rates must be adjusted for current conditions and reasonable and supportable forecasts.
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