Allowance for Doubtful Accounts Calculator
Estimate the bad debt provision your receivables need this period. Pick a method, enter your figures and the allowance you already carry, and see the expense to book (or release) with the journal entry ready to post.
Enter receivables by age and the share of each bucket you expect to lose. This is also how an Ind AS 109 provision matrix works.
Raise historical rates when conditions look worse (slowing sector, higher rates). Use 0 if you only apply history.
One loss rate on the whole closing receivables balance. Quick, but it ignores how old the balances are.
The expense is a share of this period's credit sales. The allowance then builds up from whatever balance you already carry.
Take the balance after this period's write-offs. If write-offs were bigger than the allowance, it shows a debit balance.
| Bucket | Rate | Provision |
|---|
Your inputs stay in your browser. Nothing is stored.
How to calculate the allowance for doubtful accounts
There are two ways to think about it. The percentage of sales method sets this period's bad debt expense directly. The receivables and ageing methods set the balance the allowance should have at period end, and the expense is whatever it takes to get there from the balance you already carry.
Open invoices grouped by days past due. Take it from the AR ageing report on the last day of the period, after cash is applied.
Example: 61 to 90 days past due = ₹1.2 croreThe share of each bucket you expect never to collect. Base it on two or three years of write-offs by age, then check it against what you see in the book today.
Example: 10% of the 61 to 90 day bucket = ₹12 lakhAn uplift (or cut) to historical rates for conditions you expect, which Ind AS 109 and IFRS 9 require. Document why you picked it.
Example: ₹90 lakh matrix × 1.10 = ₹99 lakhThe allowance account balance after this period's write-offs, before you top it up. Read it from the trial balance.
Example: ₹70 lakh credit balanceUsed only by the percentage of sales method. Take sales on credit for the period from the sales register, net of returns.
Example: ₹120 crore × 0.5% = ₹60 lakh expenseThe P&L charge for the period. A negative figure means the allowance is too big and you release the excess back to profit.
Example: ₹99 lakh − ₹70 lakh = ₹29 lakh| Not yet due: ₹18 Cr × 0.5% | ₹9,00,000 |
| 1 to 30 days: ₹6 Cr × 1.5% | ₹9,00,000 |
| 31 to 60 days: ₹2.5 Cr × 4% | ₹10,00,000 |
| 61 to 90 days: ₹1.2 Cr × 10% | ₹12,00,000 |
| 91 to 180 days: ₹80 L × 25% | ₹20,00,000 |
| Over 180 days: ₹50 L × 60% | ₹30,00,000 |
| Matrix total, plus 10% uplift | ₹99,00,000 |
| Expense to book (less ₹70 L already held) | ₹29,00,000 |
- Run the AR ageing at period end: ₹29 crore across six buckets
- Multiply each bucket by its loss rate and add up: ₹90 lakh
- Apply the forward-looking uplift: ₹90 lakh × 1.10 = ₹99 lakh required
- Subtract the allowance already held: ₹99 lakh − ₹70 lakh = ₹29 lakh
- Post Dr Bad debt expense ₹29 lakh, Cr Allowance for doubtful accounts ₹29 lakh
The allowance comes out at 3.4% of receivables, leaving ₹28.01 crore of net receivables on the balance sheet. If the old buckets keep growing, check how fast you are collecting with our AR turnover ratio calculator before raising loss rates.
Which method should you use?
All three are accepted ways to estimate the allowance, but they answer slightly different questions. For companies reporting under Ind AS or IFRS, trade receivables follow the simplified approach in Ind AS 109 and IFRS 9: lifetime expected credit losses from day one, usually through a provision matrix like the ageing tab.
| Method | What it sets | Best for |
|---|---|---|
| Percentage of sales | The expense | Interim months and quick estimates; it matches the expense to the sales that caused it but can let the balance drift. |
| Percentage of receivables | The closing balance | Books with similar customers and terms, where age does not change risk much. |
| Ageing schedule | The closing balance | Most enterprise books, and the usual basis for year-end and audit. |
| Ind AS 109 provision matrix | The closing balance | Ind AS and IFRS reporters: ageing loss rates from history, adjusted for forward-looking information, by customer group. |
| Specific provision | Named balances | Customers in insolvency, disputes or default; assess these one by one and take them out of the matrix. |
Loss rates in the calculator are sample figures for illustration. Build your own from write-off history by bucket and customer segment.
Government, large corporates and distributors rarely share a loss pattern. Run a separate matrix for each group with similar credit risk.
A customer in insolvency should get a specific provision, usually close to 100%, not the bucket average.
Compare last year's allowance with the write-offs that actually followed. Big gaps mean the loss rates need work.
Get a one-page summary of the required allowance, the expense or release, the journal entry and each ageing bucket.
Provision entry vs write-off entry
Two different entries, often mixed up. The provision is an estimate that hits profit. The write-off removes a specific invoice you have given up on and does not touch profit again, because the allowance already took the hit.
Top up the allowance to the required level at each close.
Dr Bad debt expense / Cr Allowance for doubtful accountsRemove the customer balance once collection is hopeless. Net receivables do not change.
Dr Allowance for doubtful accounts / Cr Trade receivablesIf the allowance is more than you need, or a written-off customer pays, the reversal goes back to profit.
Dr Allowance / Cr Bad debt expenseUnapplied receipts and unmatched credit notes push paid invoices into old buckets and inflate the provision. Apply cash before you run the ageing.
A short payment in dispute is not the same risk as a customer who has stopped paying. Tag disputes so they get their own view.
In India the provision is not deductible until the debt is written off, so it creates a deferred tax asset. Keep a provision-to-write-off trail for the tax audit.
Frequently asked questions
Group receivables by age, multiply each bucket by its expected loss rate and add the results. For example, ₹29 crore spread across six buckets with rates from 0.5% to 60% gives a ₹90 lakh allowance before any forward-looking adjustment.
The allowance is a balance sheet figure that reduces receivables. Bad debt expense is the P&L charge for the period that moves the allowance to the level you need. If you hold ₹70 lakh and need ₹99 lakh, the expense is ₹29 lakh.
No. Section 36(1)(vii) allows a deduction only for a bad debt actually written off as irrecoverable in the accounts, and its Explanation excludes any provision for doubtful debts. The Supreme Court confirmed in TRF Ltd that the debt need not be proven irrecoverable once it is written off. Banks and some NBFCs have a separate rule under section 36(1)(viia). The same treatment continues under the Income-tax Act, 2025.
Ind AS 109, like IFRS 9, requires lifetime expected credit losses on trade receivables without a significant financing component, from the day the invoice is raised. A provision matrix is a permitted practical method: historical loss rates by ageing bucket, adjusted for current and forward-looking conditions.
Debit bad debt expense (often shown as impairment loss on trade receivables) and credit the allowance for doubtful accounts. When a specific invoice is later written off, debit the allowance and credit trade receivables.
That happens when write-offs during the period were bigger than the allowance. Under the receivables or ageing method, the expense must cover both the debit balance and the required closing allowance, so it is larger than the required figure.
Related finance calculators
Enter your business email to download your results.
- Required allowance and expense or release
- Journal entry and ageing breakdown
- Instant download, no waiting