How to Compute the Net Accounts Receivable

When a company bills for services or products, that invoice becomes part of their accounts receivable total. In a perfect world, all accounts receivable would be paid, but unfortunately there are some accounts that might not get paid. Some companies try to make an allowance for bad debts. If this is the case, then the net accounts receivable can be computed, allowing for a certain amount of bad debt that will never get collected.

Instructions

1. Determine a realistic percentage of invoices the company anticipates will be its allowance for bad debts. For example, some companies figure that 2 percent of their invoices may go unpaid, so 2 percent is their allowance for bad debt. Write this number down.

2. Do a search for all unpaid invoices. Write down each invoice and the amount owed on each one.

3. Add up all the unpaid invoices from Step 2 to get a total. This is your accounts receivable total.

4. Calculate the percentage of bad debt allowance from the accounts receivable. For example, if the company has a 2-percent bad debt allowance and the total accounts receivable is $1,000, then the bad debt allowance is 2 percent of $1,000, or $20.

5. Subtract the bad debt allowance from the total accounts receivable. In this example, the accounts receivable is $1,000 and the bad debt allowance is $20, so the net accounts receivable is $980.

References

• Investopedia: Accounts Receivable
• Accounting Coach: Accounts Receivable- Net