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…
Scope:NarrowDifficulty:Moderate
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 ExpenseExpense+ | $5,700 | |
| Allowance for Doubtful AccountsContra Asset+ | $5,700 | |
| Adjustment = target $7,200 − existing $1,500. Balance-sheet approach. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Bad Debt ExpenseBad Debt ExpenseExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$5,700.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$5,700.00
Allowance for Doubtful AccountsAllowance for Doubtful AccountsLiabilityAn obligation the business owes to others. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$5,700.00
Normal bal. ▶
$5,700.00
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