Aging of Accounts Receivable
Identify Aging Categories
Which accounts are used in the Aging of Accounts Receivable method?
✓ Accounts Receivable
✓ Allowance for Doubtful Accounts
✗ Cash
✗ Accounts Payable
✗ Service Revenue
Explanation
Aging applies only to receivables, not cash, payables, or revenue accounts.
Aging Schedule Calculation
Calculate Estimated Uncollectible
Age Category
Current
31-60 days
61-90 days
Over 90 days
Total
Current
31-60 days
61-90 days
Over 90 days
Total
Calculation
10,000 x 2%
5,000 x 5%
3,000 x 10%
2,000 x 30%
10,000 x 2%
5,000 x 5%
3,000 x 10%
2,000 x 30%
Estimated Bad Debt
200
250
300
600
1,350
200
250
300
600
1,350
Adjusting Entry | 1
Allowance has zero balance
Bad Debt Expense
Allowance for Doubtful Accounts
Allowance for Doubtful Accounts
Dr 1,350
Cr 1,350
Cr 1,350
Adjusting Entry | 2
Allowance has existing credit balance of $400
Required balance = 1,350
Existing balance = 400
Adjustment needed
1,350 – 400 = 950
Bad Debt Expense
Allowance for Doubtful Accounts
Allowance for Doubtful Accounts
Dr 950
Cr 950
Cr 950
Adjusting Entry | 3
Allowance has debit balance of $200
Required balance = 1,350
Adjustment needed
1,350 + 200 = 1,550
Bad Debt Expense
Allowance for Doubtful Accounts
Allowance for Doubtful Accounts
Dr 1,550
Cr 1,550
Cr 1,550
Net Realizable Value
Accounts Receivable: 20,000
Allowance for Doubtful Accounts: 1,350
Net Realizable Value
20,000 – 1,350 = 18,650
Net Accounts Receivable = $18,650
True or False
Aging method focuses on balance sheet
➛ True
Older receivables are more collectible
➛ False
Different age groups use same percentage
➛ False
Allowance account is a contra-asset
➛ True
Aging method estimates expense directly
➛ False
Quick Quiz
Purpose of aging method
➛ To estimate uncollectible receivables accurately.
Which accounting approach does aging follow?
➛ Balance Sheet approach.
Which account is reduced to show collectability?
➛ Accounts Receivable | via Allowance.
Older receivables are assigned
➛ Higher uncollectible percentages.
GAAP prefers aging because
➛ It provides realistic net realizable value.
Accounts Payable ➧ Here