Bad Debt Provision Calculator
Month-end close asks for one number: how much of your receivables might never arrive. This bad debt provision calculator estimates the allowance for doubtful accounts two ways, a flat percentage of receivables or a four-bucket aging schedule, then books the period adjustment against your existing allowance and writes the journal entry. If you need VAT relief on a single dead invoice instead, our bad debt relief calculator handles that separate question.
The allowance is an estimate, not a write-off: individual customer accounts stay intact. Aging rates are editable examples; set them from your own collection history.
Quick Answer
On $250,000 of receivables with a 4% historical loss rate, the required provision is $10,000. With a $3,000 allowance already on the books, the adjustment is $7,000 of bad debt expense, leaving a net realizable value of $240,000. The aging-schedule method on the same book gives a slightly higher $14,250 provision, because older buckets carry higher loss rates.
💡 Key takeaways
- The allowance is an estimate, not a write-off: individual customer accounts stay intact; the provision recognizes the expected loss early.
- You book the difference from the existing allowance, not the full provision: $10,000 required minus $3,000 carried means a $7,000 entry.
- Aging beats a flat percentage for accuracy: old receivables default far more often than current ones, so bucket-specific rates give a truer reserve.
- Under both GAAP and IFRS, provisions are forward-looking estimates: the old incurred-loss model that waited for proof of default is gone.
How to use the bad debt provision calculator
Choose a method, enter your book, and click Calculate provision. The results stay hidden until you click, and Reset restores the worked-example values.
- Flat percentage: enter total receivables and your historical loss rate. Use this when your customer base is homogeneous and payment behavior is stable.
- Aging schedule: switch to this mode and enter each bucket’s balance and loss rate. Use it when collectibility clearly decays with age, which is most real books.
- Existing allowance: always enter the balance already sitting in the allowance account. The calculator books the adjustment to reach the required provision, and builds the journal entry in both directions.
- Copy or share: use Copy my results to grab the provision, NRV and journal entry for your close checklist, or Share results to send them to another app.
The two methods, and when to use each
The flat-percentage method multiplies total receivables by a historical loss rate. It is fast and defensible when your customer base is homogeneous and payment behavior is stable: 4% of $250,000 is $10,000, done. The aging-schedule method groups receivables by how long they have been outstanding and applies rising loss rates to older buckets, which mirrors how collectibility actually decays:
| Bucket | Balance | Rate | Provision |
|---|---|---|---|
| Current | $150,000 | 1% | $1,500 |
| 31 to 60 days | $60,000 | 5% | $3,000 |
| 61 to 90 days | $25,000 | 15% | $3,750 |
| Over 90 days | $15,000 | 40% | $6,000 |
| Total | $250,000 | 5.70% | $14,250 |
Notice the 90-day bucket: 6% of the balance but 42% of the provision. That concentration is the whole point of aging. It flags where collection effort pays off fastest and justifies stricter credit terms for slow payers. The 1%, 5%, 15% and 40% rates above are editable example presets, not standards: under US GAAP and IFRS, no specific estimation method is prescribed, and the rates must come from your own history and current conditions. Firms with a few large customers should go further and assess those accounts individually; firms with thousands of small balances can rely on the statistical buckets.
Why the existing allowance changes the journal entry
The allowance account carries a running credit balance. Each period you do not book the full required provision; you book the top-up that brings the existing balance to the required level. With $3,000 already in the allowance and $10,000 required, the entry is $7,000:
Dr Bad Debt Expense $7,000
Cr Allowance for Doubtful Accounts $7,000
On the aging method the same book needs $14,250, so the entry is $11,250 and net receivables land at $235,750. The balance sheet then shows receivables at net realizable value: $250,000 gross less the allowance. When a specific debt is later written off, the entry debits the allowance and credits receivables; total net receivables do not change, because the loss was already recognized through the provision.
For tax purposes, note the difference: book provisions are estimates, but the IRS generally allows the deduction only when the debt actually becomes worthless, as explained in IRS Topic No. 453, Bad Debt Deduction. A business bad debt can be deducted when it becomes partly or totally worthless; a nonbusiness bad debt must be totally worthless. For the financing side of carrying receivables, our basic loan calculator prices the cost of the credit you extend to customers.
What competing calculators miss
Competing calculators usually stop at the provision amount. Three things they leave out are the existing-allowance adjustment, which is the number you actually book; the net realizable value, which is what appears on the balance sheet; and the journal entry itself. This calculator produces all three, plus the aging breakdown when you use the schedule method. One more gap: the debit-balance edge case. When write-offs outrun provisions, the allowance can carry a debit balance, and the period’s adjustment grows larger to compensate. The calculator handles that direction too, flipping the entry when the allowance needs reducing rather than increasing. And unlike some rivals that stamp a verdict on the result, this calculator gives no Low, Moderate or High label: a provision percentage means nothing without your industry and history, so inventing a verdict band would be false precision.
Frequently asked questions
A bad debt provision, formally the allowance for doubtful accounts, is an estimate of the receivables a business expects never to collect. It is booked as a contra-asset against accounts receivable, so the balance sheet shows receivables at their net realizable value rather than their gross amount.
Two standard ways. The flat-percentage method multiplies total receivables by a historical loss rate. The aging-schedule method groups receivables by age and applies rising loss rates to older buckets. Both give a required provision; the journal entry is the difference from the existing allowance balance.
Debit Bad Debt Expense and credit Allowance for Doubtful Accounts for the adjustment amount. With a $3,000 existing allowance and a $10,000 required provision, the entry is $7,000. When a specific debt is later written off, you debit the allowance and credit receivables instead.
Gross receivables minus the allowance for doubtful accounts. It is the amount the business realistically expects to collect and the figure reported on the balance sheet. A $250,000 receivable book with a $10,000 allowance has a $240,000 net realizable value.
There is no fixed rate: it comes from your own collection history. Textbook examples often start around 1 to 2% for current invoices and rise to 30 to 50% or more for balances over 90 days past due, but those are illustrations, not standards. Enter your own rates in the calculator; it deliberately gives no verdict band on the result.
A provision is an estimate booked before any specific invoice is confirmed uncollectible; individual customer accounts stay intact. A write-off removes a specific dead invoice from the books, debiting the allowance and crediting receivables. The provision recognizes the loss early; the write-off assigns it to a customer.
Yes. When the existing allowance already exceeds the required provision, the entry reverses: debit Allowance for Doubtful Accounts and credit Bad Debt Expense for the difference. The calculator handles that direction automatically, so an over-reserved book books a reduction instead of more expense.
No. A provision is an accounting estimate of doubtful receivables, booked under GAAP or IFRS. Bad debt relief is a tax reclaim, in the UK system, of the VAT on a single invoice that has gone unpaid. Our bad debt relief calculator covers that separate question.
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References
- Financial Accounting Standards Board. Credit Losses (Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses, Topic 326: the allowance for credit losses as a valuation account presenting the net amount expected to be collected; no specific estimation method required). Accessed October 24, 2026.
- IFRS Foundation. IFRS 9 Financial Instruments (impairment requirements for expected credit losses on financial assets). Accessed October 24, 2026.
- Internal Revenue Service. Topic No. 453, Bad Debt Deduction (a debt becomes worthless when the facts show no reasonable expectation of repayment; business bad debts deductible when partly or totally worthless; nonbusiness bad debts must be totally worthless). Accessed October 24, 2026.
- Paystand. Allowance for Doubtful Accounts: Bad Debt Guide (percentage-of-sales and aging-of-receivables methods; allowance as a contra-asset; net accounts receivable formula). Accessed October 24, 2026.
- LegalClarity. How to Calculate Allowance for Doubtful Accounts: 3 Methods (aging method mechanics; the allowance figure is a target ending balance, and the entry must adjust for the existing balance). Accessed October 24, 2026.
- Emagia. Bad Debt Expense Equation: Calculate and Manage Uncollectible AR (desired AFDA balance as the sum of bucket amounts times uncollectible percentages; bad debt expense as desired balance minus existing balance; debit-balance handling). Accessed October 24, 2026.