The formula to calculate the Bad Debt Ratio (BDR) is:
\[ BDR = \left( \frac{BDA}{TCS} \right) \times 100 \]
Where:
Let's say the bad debt amount (BDA) is $5,000 and the total credit sales (TCS) is $100,000. Using the formula:
\[ BDR = \left( \frac{5,000}{100,000} \right) \times 100 = 5 \]
So, the Bad Debt Ratio (BDR) is 5%.
Definition: Bad debt is the amount of receivables that a company does not expect to collect.
Formula: \( \text{Bad Debt} = \text{Total Receivables} \times \text{Estimated Uncollectible Percentage} \)
Example: \( \text{Bad Debt} = 50000 \times 0.05 \)
Definition: The bad debt ratio is the proportion of bad debts to total sales or receivables.
Formula: \( \text{Bad Debt Ratio} = \frac{\text{Bad Debts}}{\text{Total Sales}} \)
Example: \( \text{Bad Debt Ratio} = \frac{3000}{100000} \)
Definition: The bad debt percentage is the ratio of bad debts to total credit sales.
Formula: \( \text{Bad Debt Percentage} = \frac{\text{Bad Debts}}{\text{Total Credit Sales}} \times 100 \)
Example: \( \text{Bad Debt Percentage} = \frac{2000}{80000} \times 100 \)
Definition: The formula used to calculate bad debts based on historical data and current economic conditions.
Formula: \( \text{Bad Debt} = \text{Total Receivables} \times \text{Estimated Uncollectible Percentage} \)
Example: \( \text{Bad Debt} = 60000 \times 0.04 \)
Definition: The estimated bad debt is calculated using historical data and current economic conditions.
Formula: \( \text{Estimated Bad Debt} = \text{Total Receivables} \times \text{Estimated Uncollectible Percentage} \)
Example: \( \text{Estimated Bad Debt} = 70000 \times 0.03 \)
Definition: Methods used to calculate bad debts include the direct write-off method and the allowance method.
Formula: \( \text{Bad Debt} = \text{Total Receivables} \times \text{Estimated Uncollectible Percentage} \)
Example: \( \text{Bad Debt} = 80000 \times 0.02 \)
