One way to estimate the amount of uncollectible accounts receivable is to prepare an aging. An aging of accounts receivable lists every customer's balance and then sorts each customer's balance according to the amount of time since the date of the sale. For example, assume that all sales are made with terms of 30 days. Let's also assume that Customer A has an accounts receivable balance of $12,000—consisting of $8,000 that was sold 15 days ago and $4,000 that was sold 40 days ago.

The $8,000 will be entered into the column with the heading "Current" and $4,000 will be entered into the column with the heading "1-30 days past due." After the sorting/entering is done for each and every customer, the columns are summed. The "Current" column is likely to be collectible. However, the amounts in the column headed "1-30 days past due" might not be 100% collected. The amounts in the column with the heading "31-60 days past due" will have a higher probability of being uncollectible. The column "61-90 days past due" indicates a still greater likelihood of not being collected. And the amounts in the column "More than 90 days past due" will be even less likely to be collected in their entirety.

Examining the details of each of the past due accounts will help you estimate the amount that will likely be uncollectible.

Another way to estimate the amount of uncollectible accounts is to simply record a percentage of credit sales. For example, if your company and its industry has a long run experience of 0.2% of credit sales being uncollectible, you might enter 0.2% of each period's credit sales as a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.

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