Accounts Receivable Aging: Report, Example, and Allowance Calculation

Accounts receivable aging sorts unpaid customer invoices into time buckets, such as not yet due, 1 to 30 days past due, and 31 to 60 days past due. Accountants then apply an expected-loss rate to each bucket. The total is the required ending allowance for credit losses, not automatically the expense.

The expense step is where students frequently lose points. A correct schedule can still lead to a wrong journal entry if you ignore the credit or debit balance already in the allowance. Below, we build the report, find the target, record the adjustment, and compute net receivables.

A quick note on names: Allowance for credit losses is the current term for what many textbooks and older lessons, including the video below, call the allowance for doubtful accounts. It is a contra-asset, meaning an account that reduces another asset on the balance sheet. Credit loss expense is the same idea as bad debt expense.

Why it matters for exams: Trade receivables are part of Area II of the CPA FAR blueprint, and the allowance also appears in CMA Part 1 study material. A common question gives you an aging schedule and asks for the expense, the ending allowance, or net receivables.

What does an accounts receivable aging report look like?

An accounts receivable aging report lists each customer’s unpaid balance and splits it into age buckets. It shows who needs a collection call and how much of the total is getting old. New to receivables? Start with What Is Accounts Receivable?

Hypothetical example. Here is the December 31 aging report for Maple Office Supply, based on days past due.

Dover Co. stands out. Half of its $18,000 balance is more than 30 days past due, so it is a natural first call for the collections team. The bottom row is what we use to estimate credit losses.

How does accounts receivable aging work? Four steps

State whether the schedule measures days since invoice issuance or days past the payment due date. These are different measures. An invoice issued 45 days ago on net 60 terms is not yet overdue. Apply the categories specified in the question consistently.

An aging schedule also helps identify customers requiring follow-up. However, an overdue balance is not automatically worthless, and a current balance is not automatically risk-free.

Aging schedule example: from report to allowance

Now let’s turn Maple’s report into an allowance estimate. An expected-loss rate is the percentage of a bucket you expect not to collect. The rates below are illustrative assumptions that already reflect Maple’s expected-loss assessment. They are not prescribed accounting rates.

The required ending allowance is $4,300. This amount describes the estimated losses remaining in the outstanding receivables, regardless of the current allowance balance.

Notice that credit sales are not part of this calculation. The schedule starts with receivables still outstanding at the reporting date. For the underlying account relationships, review the allowance method comparison.

How do you record the allowance adjustment?

Existing credit balance

Suppose Maple’s allowance has an $800 credit balance immediately before the adjusting entry. This is called the unadjusted balance. It already contains part of the required $4,300. The additional credit needed is $3,500: $4,300 minus $800.

After posting, the allowance is $800 + $3,500 = $4,300 credit. Credit Loss Expense is $3,500 for this adjustment, while net receivables are $95,700.

Existing debit balance

Now change only one fact: the unadjusted allowance is $600 debit. Maple must eliminate that debit and then establish a $4,300 credit balance. The required credit is $4,900: $4,300 plus $600.

The ending allowance and net receivables are unchanged from the first case. Only the expense adjustment differs.

Where does a debit balance come from?

Suppose the allowance started the year at $5,000 credit. During the year, Maple wrote off $6,000 of customer balances and recovered $400 that had been written off earlier.

Unadjusted allowance = $5,000 − $6,000 + $400 = −$600, which is the $600 debit above.

Now add the $4,900 adjustment: −$600 + $4,900 = $4,300. That is exactly the target.

Existing credit exceeds the target

If the allowance is $5,000 credit and the supported target is $4,300, reduce the allowance by $700: debit Allowance for Credit Losses and credit Credit Loss Expense. Updating an estimate can reduce expense as well as increase it.

How do you choose expected-loss rates under CECL?

Under the general current expected credit losses (CECL) model, historical loss experience is a starting point. Relevant current conditions and reasonable and supportable forecasts may require different rates. For example, a deterioration in customer payment patterns could support a higher expected-loss rate even if last year’s write-offs were low.

The FASB shows this approach in Example 5 at ASC 326-20-55-37 through 55-40. That entity starts with historical rates for each age bucket, including 0.3% for receivables that are not past due. It then lowers each rate by about 10% because current and forecast conditions have improved.

Older categories commonly have higher rates, but that pattern is not a mandatory numerical rule. The estimate must fit the receivables and available evidence. Receivables with different risk characteristics may need separate pools, each with its own rates. A customer whose risk doesn’t match any pool is evaluated on its own.

FASB ASU 2025-05 added two options for current accounts receivable and current contract assets that arise from ASC 606 revenue contracts. It applies to annual periods beginning after December 15, 2025, and early adoption was permitted.

First, any entity may elect a practical expedient, which is an allowed shortcut. It assumes that conditions at the balance sheet date stay the same for the asset’s remaining life, so no forecast is needed. Historical losses must still be adjusted for current conditions.

Second, an entity that is not a public business entity and elects the expedient may also consider cash collected after the balance sheet date. This election covers collections after the balance sheet date and before the financial statements are available to be issued, or before an earlier cutoff selected by the entity after the balance sheet date.

This example uses the general model with neither election. For the governing rules, see ASC 326-20-30-10A through 30-10H in the FASB Codification.

What are the most common aging mistakes?

• Recording the schedule total as expense automatically. It equals expense only when the unadjusted allowance is zero.
• Subtracting a debit balance. Add its magnitude because it must first be eliminated.
• Using the beginning balance without updating it. Use the balance immediately before adjustment, after relevant write-offs and recoveries have been posted.
• Calling every credit carryover an overestimate. A credit can remain because related receivables are still outstanding. Interpret it in context.

The write-off and recovery entries explain why the allowance changes between reporting dates.

Practice questions with explanations

1. Determine the target allowance

Question: A company has $40,000 of receivables with a 2% expected-loss rate and $10,000 with a 15% rate. What is the required ending allowance?

2. Adjust an existing credit balance

Question: Using the $2,300 target, assume the allowance has a $700 unadjusted credit balance. What adjusting entry is required?

3. Adjust an existing debit balance

Question: Using the same target, assume the allowance has a $200 unadjusted debit balance. What is the expense, and what are net receivables?

Frequently asked questions

Why does aging produce a balance-sheet target?

It analyzes receivables outstanding at a particular date. Its total measures expected losses in that asset balance.

Can the allowance have a debit balance?

Yes, before adjustment, write-offs may have exceeded the credits previously recorded. The reporting-date adjustment brings the account to the supported ending estimate.

What is the difference between an aging report and an aging schedule?

Many people use the two terms interchangeably. In this lesson, the report lists unpaid balances by customer and age, and the schedule adds expected-loss rates to estimate the allowance.

Is the allowance for doubtful accounts the same as the allowance for credit losses?

Yes. Both names describe the same contra-asset account, which reduces receivables to the amount expected to be collected. Allowance for credit losses is the term used in ASC 326.

Should invoices be aged from the invoice date or the due date?

Reports can use either one, and the buckets mean different things. On an exam, use the basis the question gives you. In practice, label the basis and apply it consistently.

How is the aging method different from the percentage-of-sales method?

Aging starts with receivables outstanding and estimates the ending allowance, so the existing allowance balance affects the expense. The traditional textbook percentage-of-sales method starts with credit sales and estimates expense directly. Under CECL, the ending allowance must reflect expected credit losses on receivables outstanding at the reporting date. Calculating expense as a percentage of sales does not eliminate the need to assess and adjust the ending allowance.

Is the allowance for credit losses tax deductible?

Generally, no. For federal income tax, most businesses deduct specific business bad debts under IRC Section 166 when they become wholly or partly worthless. A deduction for partial worthlessness is limited to the amount charged off during the tax year. For an unpaid customer receivable, the amount generally must have been included in taxable income. A cash-method business generally cannot deduct unpaid fees it never recognized as income. The allowance estimate itself is a book entry. When the related bad debt is deductible in a later period, the timing difference is a temporary book-tax difference.

Accounting references: FASB ASC 326-20, which covers credit losses on assets measured at amortized cost. See 326-20-30-1 for the allowance and credit loss expense, 326-20-30-3 for estimation methods, 326-20-30-7 through 30-9 for the information to consider, 326-20-35-8 for write-offs, and 326-20-55-37 through 55-40 for the FASB’s aging schedule illustration (Example 5). All numerical examples and practice questions here are hypothetical. Last reviewed: November 2026.

For more worked examples and practice, explore the Intermediate Accounting course.

Preparing for the CPA exam? Keep practicing with the FAR Test Bank.

About the author: Mansour Farhat, CPA, CIA, DBA, is a veteran accounting educator and the founder of Farhat Lectures and its YouTube channel. He holds a Doctor of Business Administration from Temple University and a Master of Accountancy from Bloomsburg University. Read more about Professor Farhat.