Percent-of-Receivables Target Allowance

Definition: The Percent-of-Receivables method (also called the Balance Sheet approach or Aging method) estimates the Allowance for Doubtful Accounts as a perce…

The Percent-of-Receivables method (also called the Balance Sheet approach or Aging method) estimates the Allowance for Doubtful Accounts as a percentage of ending Accounts Receivable. When an aging schedule is used, different percentages are applied to each age bucket (current, 1-30 days past due, 31-60, etc.). The target allowance is the total estimated uncollectible amount across all buckets. The adjusting entry equals the difference between this target and the existing allowance balance.