Question

How do you estimate uncollectible A/R using the aging of accounts receivable method?

Answer 1

To estimate uncollectible A/R using the aging method, categorize A/R by age, apply estimated uncollectible percentages to each category, sum these to get a total estimate, and record it as an allowance for doubtful accounts.

Step-by-step explanation:

To estimate uncollectible accounts receivable (A/R) using the aging of accounts receivable method, you first categorize the A/R by age. Often, the older the receivable, the less likely it is to be collected. Here's a step-by-step explanation:

1. Prepare an aging report that lists all unpaid customer invoices and credit memos by date ranges (for example, current, 1-30 days past due, 31-60 days past due, and so on).
2. Associate each age category with a certain estimated uncollectible percentage. These percentages are based on historical data and management's judgment about the ability to collect outstanding amounts.
3. Multiply the total amount of receivables in each category by their corresponding uncollectible percentage to arrive at the estimated uncollectible amount for each category.
4. Add up all the estimated uncollectible amounts across all categories to get the total estimated uncollectible A/R.
5. Record this amount as an allowance for doubtful accounts in your accounting records to adjust the total accounts receivable to their net realizable value.