How does the aging of accounts receivable determine bad debts expense?
The aging of accounts receivable allows you to quickly identify the credit customers that are past due and the length of time that the amounts have been past due. Focusing on the past due accounts receivable will assist you in estimating how much of the accounts receivable will never be collected.
The estimated amount of accounts receivable that will never be collected should be the credit balance in the general ledger account Allowance for Doubtful Accounts. This credit balance when combined with the debit balance in Accounts Receivable will mean that the amount that is likely to be collected will be reported on the balance sheet.
When the Allowance for Doubtful Accounts is credited to increase its balance, the entry will debit the general ledger account Bad Debts Expense.
