According to this method you need to first analyse your outstanding debtors account balances according to periods that each of these debts are outstanding. To do this, you need to have ageing schedules or an age analysis report.

- An age analysis report, is simply a list of outstanding debts, which originated in a specific period, but which are still outstanding (not yet paid, cancelled by credit note or written off) as at the end (last day) of each of the defined or specified periods.

- Should you have started to use TurboCASH, and you have taken on the balances for each period of your debtor accounts, you may generate a Debtor Age Analysis report on which to base your calculations. If this was not done, you may need to obtain the Debtors Age Analysis Schedules from your previous accounting system.

To Calculate Estimates on the Debtors Age Analysis Report:

1. If you have taken on the outstanding balances of your debtors to use the ageing facility in TurboCASH, or if you have been using TurboCASH for some time, click on the Reports→Debtor→Age Analysis menu option to generate the Debtors Age Analysis Report.
2. Select all your debtors, and the Date of Ageing as the last day of the period for which you wish to use the totals. This would normally be the last day of your financial year.
3. Do not select the Show Transactions on the Age Analysis Options screen, since you will not be using the transaction details at this stage.
4. Click on the OK button on the Debtors Age Analysis Report Options screen. The age analysis report would display as follows:
   
   In this example, it the ageing periods could be defined as follows:

• Current – Outstanding debt, as at the last day of February 2008.
• 30 Days – Outstanding debt, as at the last day of January 2008.
• 60 Days – Outstanding debt, as at the last day of December 2007.
• 90 Days – Outstanding debt, as at the last day of November 2007.

Each of the balances will be considered individually, and specific attention will be given to those accounts with the longest outstanding balances.

You could also calculate the percentages of your ageing periods as a percentage of the transaction total to use as some guidelines in your calculations or considerations.

From this age analysis, the doubtful debts would be listed. The list of doubtful debts will then be used to create or adjust the provision for bad debts.

If you have accounting records from a previous accounting system:

Find your Debtors Age Analysis Schedule (summary) from your old accounting records (only if you did not take-on your Debtor Accounts for each outstanding period).

A typical age analysis report in the manual system (previous accounting records) could look as follows:

Each of the balances will be considered individually and specific attention will be given to those accounts with the longest outstanding balances.

From this age analysis, the doubtful debts would be listed. The list of doubtful debts will then be used to create or adjust the provision for bad debts.

This method is normally used if a trend is identified, for example that an average of 2% of the total of the credit sales for the past two years is bad debts. If the total credit sales for a specific financial year, or an accounting period are 100000, the provision for bad debts is 2000 (calculated as 2% of 100000).

- This is a very simple method for calculating or estimating the provision for bad debts. On the other hand it does not relate to the amount owing by the debtors.

The summarised information of an age analysis schedule, or report, can also be used to calculate or estimate for the provision of bad debts.

You would use the list of the outstanding debt totals for each period, and add an estimated percentage for the bad debts that is likely to be irrecoverable. These percentages are normally determined by the trends of bad debts written off in the past for the debt in each of these ageing periods.

In this example, the trend of bad debts is 1% for the current period, 2% for more than 30 days, 5% for more than 60 days and about 10% of outstanding debts will probably become irrecoverable. The provision for bad debts, according to this calculation, would be 800.

- This may differ from business to business, and increased credit control as well better debt collection could also bring these percentages down.