Bad Debt Expense Calculator
Bad Debt Expense: 0
What is Bad Debt Expense?
Bad debt expense is the portion of credit sales that a company expects will not be collected. It helps businesses estimate losses from uncollectible accounts.
✅ 2 Common Methods to Calculate:
1. Percentage of Sales Method
Bad Debt Expense = Total Credit Sales × Estimated % Uncollectible
2. Aging of Accounts Receivable Method
Based on overdue invoice buckets — not covered here (more advanced).
This calculator uses method 1 (Percentage of Sales) — the most common and straightforward.
📌 Example:
If:
- Credit Sales = ₹500,000
- Uncollectible Rate = 2%
Bad Debt Expense = 500,000 × 2% = ₹10,000
How Do I Calculate Bad Debt Expense? – Formula, Examples & Online Tool
Businesses often face the reality that not all customers pay their dues. That’s where bad debt expense comes in. If you're wondering "how do I calculate bad debt expense?", this guide gives you a simple explanation with formulas, accounting methods, and a calculator to automate the process.
📌 What is Bad Debt Expense?
Bad debt expense is an accounting entry that represents accounts receivable a business does not expect to collect. It is recorded on the income statement and reduces net income.
Common causes of bad debt include:
- Bankruptcy of the customer
- Disputes over product/service
- Poor credit screening
- Lack of payment despite multiple reminders
🧠 Methods to Calculate Bad Debt Expense
There are two main approaches used in accounting:
✅ 1. Direct Write-Off Method
Formula:
Bad Debt Expense = Uncollectible Amount Identified
Used when a specific account is deemed uncollectible. Not GAAP-compliant for large businesses but common for small ones.
📘 Example:
Customer X owes ₹10,000 and defaults.
→ Bad Debt Expense = ₹10,000
✅ 2. Allowance Method (GAAP Preferred)
Formula (Percentage of Sales):
Bad Debt Expense = Estimated % × Credit Sales
Formula (Aging of Receivables):
Estimate based on the age of outstanding invoices.
📘 Example 1: Percentage of Sales
- Credit Sales = ₹5,00,000
- Estimated Bad Debt = 2%
→ Bad Debt Expense = ₹10,000
📘 Example 2: Aging Method
| Age Group | Amount Due | Est. % Uncollectible | Bad Debt |
|---|---|---|---|
| 0–30 days | ₹2,00,000 | 1% | ₹2,000 |
| 31–60 days | ₹1,00,000 | 5% | ₹5,000 |
| 61–90+ days | ₹50,000 | 10% | ₹5,000 |
| Total | – | – | ₹12,000 |
→ Total Bad Debt Expense = ₹12,000
🛠️ Use Our Free Bad Debt Expense Calculator
Input Fields:
- Total Credit Sales
- % of Expected Bad Debt
- OR Aging Schedule Data
- Previous Allowance Balance (optional)
📖 FAQs – Calculating Bad Debt Expense
❓ Is bad debt expense tax-deductible?
In many regions, yes — but only under certain conditions. Consult a tax professional.
❓ Which method is more accurate?
The Allowance Method provides a more accurate and proactive estimation, especially with large or aging receivables.
❓ Can bad debt be reversed?
Yes. If a previously written-off account is paid, it’s recorded as "Recovery of Bad Debt."
❓ How often should I calculate bad debt?
Usually monthly or quarterly — in line with your financial reporting schedule.
✅ Final Thoughts
Knowing how to calculate bad debt expense helps you reflect the true financial health of your business. Use the right method for your situation and automate the process using our free calculator.