How to calculate uncollectible accounts expense?
Understand the Problem
The question is asking how to determine the uncollectible accounts expense, which involves calculating the amount of accounts receivable that are not expected to be collected. This typically requires understanding accounting principles such as the aging method or the percentage of sales method.
Answer
Divide historical bad credit by historical credit sales and multiply by total credit sales.
To calculate uncollectible accounts expense, divide your historical average for total bad credit by your historical average for total credit sales. Then, multiply the resulting percentage by the total credit sales.
Answer for screen readers
To calculate uncollectible accounts expense, divide your historical average for total bad credit by your historical average for total credit sales. Then, multiply the resulting percentage by the total credit sales.
More Information
Uncollectible accounts expense (or bad debt expense) is used to estimate the amount of credit sales that won't be collected. This helps companies manage their financial expectations and set aside allowances for potential losses.
Tips
A common mistake is not using historical averages correctly or not updating the percentages periodically to reflect current conditions.
Sources
- How to Calculate Uncollectible Accounts Expense - basicaccountinghelp.com
- Estimating Uncollectible Accounts | Financial Accounting - courses.lumenlearning.com
- How to Calculate Bad Debt Expense - FreshBooks - freshbooks.com
