Aging of Receivables Method
Definition: Method of estimating bad debts by classifying accounts receivable by how long they have been outstanding and applying progressively higher uncollec…
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Method of estimating bad debts by classifying accounts receivable by how long they have been outstanding and applying progressively higher uncollectibility percentages to each age category.
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Adjust allowance from aging schedule | ||
| Aging estimates $7,200 uncollectible; current allowance $1,500. | ||
| Bad Debt Expense | $5,700 | |
| Allowance for Doubtful Accounts | $5,700 | |
| Adjustment = target $7,200 − existing $1,500. Balance-sheet approach. | ||
Related Subjects
Components
- Aging ScheduleThe aging schedule is the tool this method relies on
Related
- Allowance MethodAging is a specific approach within the allowance method
- Percent-of-Receivables MethodBoth are balance-sheet approaches; aging uses multiple rates
- Bad Debt ExpenseExpense equals target allowance minus existing balance
Contrast
- Percent-of-Sales MethodIncome-statement approach vs. this balance-sheet approach
Produces
- Allowance for Doubtful AccountsProduces the target allowance balance
External Links
- Bad debt#Allowance method — Wikipedia