Summarize:

This will give you the asset account that you need for this calculation. Remember to calculate this value end of an accounting period. Accounts receivable reflects all current outstanding accounts (that haven't yet been paid by customers). If you did any risk categorization in your calculation of the percentage allowance for doubtful accounts, be sure to make a note of which risk level or risk category each accounts falls into. This will help you calculate the percentage allowance for doubtful debts you need to use. Multiply your decided allowance for doubtful accounts percentage by the current value for accounts receivable to get your allowance for doubtful accounts. This number should represent the monetary value of accounts that you expect will not be paid. This should be done at the end of an accounting period. If you are using any form of risk categorization, remember to adjust the additional revenue doubtful account percentage based on which customer or risk category it is coming from. Essentially, you need to be able to multiply the revenue from each customer category by the risk percentage of that category, individually. This may require separating the current value for accounts receivable into categories or even into individual accounts. After separating, simply multiply each account or category by the associated allowance for doubtful accounts percentage and then add then together. This will give you a total value for allowance for doubtful accounts. For example, imagine that your accounts receivable total $100,000. Of this, $30,000 come from high-risk customers, $20,000 from medium-risk, and $50,000 from low-risk, with allowance for doubtful debt percentages of 5%, 2%, and 1%, respectively. Your total allowance for doubtful debts would be ($30,000*0.05) + ($20,000*0.02) + ($50,000*0.01), or $2,400. This will give you your value for net realizable receivables. This is your total amount of receivables that you expect to actually collect. Continuing with the previous example, you would subtract the allowance for doubtful accounts of $2,400 from the total accounts receivable of $100,000 to get your net accounts receivable, which would be $97,600. Remember to record allowance for doubtful debts in accordance with the matching principle. Even though this customer may very well pay in full, record the expense to match it with its corresponding revenue. Technically, this "subtraction" is actually an addition of a current asset account, accounts receivable, and a contra-asset account, allowance for doubtful accounts. The contra-asset account is a negative value so it reduces the asset account when added. Unless you are a publicly-held company though, there is no need to strictly follow this organization. The important thing is that the subtraction is made. In many case, net accounts receivable is expressed as a percentage instead of as a value. This is done by simply subtracting the percentage allowance for doubtful accounts from 100%. In this case, the percentage represents the chance that a company is able to collect money from its customers. This can serve as a measure of the health of the company. For example, if the forecasted percentage allowance for doubtful accounts is 3%, the net accounts receivable expressed as a percentage would be 100% - 3%= 97%. This means that 97% of customers will end up paying the company for its services or products. For different risk levels, you would have to take a weighted average of the percentage allowance for doubtful accounts and use that as your overall percentage. You would then subtract this percentage from 100%, as before, to find net accounts receivable. See how to calculate weighted average for more.
Sum all accounts receivable. Calculate the allowance for doubtful accounts. Subtract your allowance for doubtful accounts from accounts receivable. Find net accounts receivable as a percentage.