How To Determine The Bad Debt Expense. Estimating your bad debts usually involves some form of the percentage of bad debt formula, which is just your past bad debts divided by your past credit sales. The method looks at the balance of accounts receivable at the end of the period and assumes that a certain amount will not be collected.

Bad debt expense = net sales (total or credit) x percentage estimated as uncollectible. For example, if a company sells a total of $100 million worth of products on credit during a certain year, and $3 million of this amount turns out to be uncollectible. Although you don’t base your bad debt estimate using a percentage of the current accounts receivable balance, the resulting bad debt expense you project will ultimately reduce its balance.

How To Find The Uncollectible Accounts Expense. Estimating for uncollectible accounts is necessary if you want to ensure solid and proper financial management and accurate financial statements. Two methods are commonly used for recognizing uncollectible accounts expense in the books of seller.

This is the area underneath your accounts receivable balance on your balance sheet. Uncollectible accounts receivable is a loss of asset and decrease in revenue that is recognized by recording an expense known as uncollectible account expense. Doing so matches the expense to the related.