Aging accounts receivable is a method you can use to estimate a reserve account for amounts your business does not plan on collecting. An aging accounts receivable will show the amounts past due that are owed to you. These amounts are then separated by the number of days they are overdue. For example, you may have categories of one to 30 days, 31 to 60 days and 60 days or more. You then apply a percentage based on past results to each amount to calculate your reserve.
Determine an estimated percentage you will not collect for each time period. If you have been in business long enough, you can use old data to arrive at an estimate. For example, if you never collect on debts owed after 60 days, you would estimate that 100 percent of those debts would not be collected. For example, assume your aging accounts receivable is $500 for one to 20 days, $1,000 for 21 to 40 days, $400 for 41 to 60 days and $100 for over 60 days. You estimate you will not collect 10 percent of the money from one to 20 days, 40 percent of 21 to 40 days, 80 percent of 41 to 60 days and 100 percent of 60 or more days.
Multiply the amount not collected by its applicable estimated collection percent. In the example, $500 times 10 percent equals $50, $1,000 times 40 percent equals $400, $400 times 80 percent equals $320 and $100 times 100 percent equals $100. These are you estimated uncollectible amounts.
Add together your estimated uncollectible amounts to calculate your uncollectible reserves. In the example, $50 plus $400 plus $320 plus $100 equals $870.