How to use the allowance for doubtful accounts calculator
Split your receivables into aging buckets, enter a loss rate for each, and the calculator builds an allowance using the aging method. Older balances collect less often, so later buckets normally carry higher rates.
No loss rates are filled in for you. Actual write-off experience varies so much by industry, customer mix and collection practice that borrowing someone else's percentages will leave the allowance materially over or under stated. Pull three years of balances and actual write-offs by bucket and use the rates that come out of your own history.
Under ASC 326, the current expected credit loss model asks for an estimate of losses over the life of the receivable, informed by past experience and by what you reasonably expect ahead, so treat these rates as a starting point and adjust them for conditions you can see coming. One tax note: for US federal income tax purposes the allowance itself is not deductible. Accrual-basis taxpayers deduct specific debts only when they become wholly or partly worthless, under IRC section 166, so the book allowance and the tax deduction will not match.
Frequently asked questions
Take historical balances that sat in each aging bucket and calculate what share was never collected. If $100,000 of balances once sat past 90 days and $40,000 of it was eventually written off, that bucket's rate is 40%.
It means your opening allowance was larger than the allowance this calculation calls for, so the difference is reversed back into income. That usually shows up after a strong collection period or when the receivable mix shifts into younger buckets.