Calculators
Bad Debt Reserve Calculator
Calculate a bad debt reserve by the percentage-of-sales or percentage-of-receivables method and the adjustment to book.
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The tool
Enter your numbers below. Results update as you type, and nothing leaves your browser.
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What people use it for
- Month-end provisioning
- Year-end audit preparation
- Credit policy reviews
- Accounting coursework
About this tool
What the Bad Debt Reserve Calculator does
A bad debt reserve, or allowance for doubtful accounts, estimates receivables that will not be collected. The percentage-of-sales method sets this period’s expense from credit sales; the percentage-of-receivables method sets the required closing balance of the allowance. This calculator shows both and the entry needed.
Formula
- Sales method: bad debt expense = credit sales × loss rate
- Receivables method: required allowance = receivables × loss rate
- Adjustment = required allowance − existing allowance
Worked example
Using the starting values in the calculator above:
| Input | Value |
|---|---|
| Credit sales for the period | $1,200,000 |
| Expected loss on sales | 1.5% |
| Closing receivables | $300,000 |
| Expected loss on receivables | 4% |
| Existing allowance balance | $5,000 |
| Result | Value |
|---|---|
| Adjustment needed (receivables method) | $7,000 |
| Required allowance balance | $12,000 |
| Expense under sales method | $18,000 |
| Net realisable receivables | $288,000 |
How to read the result
The receivables method keeps the balance sheet accurate; the sales method matches expense to revenue. Many businesses use an ageing-based receivables method for the most accurate figure.
A negative adjustment means the allowance is too high and should be released.
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Questions
Questions about this tool
The things clients actually want to know — costs, timelines, ownership and what happens after launch.
An estimate of receivables that will not be collected, recorded as an allowance that reduces receivables on the balance sheet.
The receivables method, especially with ageing, gives a more accurate balance sheet figure.
Debit bad debt expense and credit the allowance for doubtful accounts.
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