Bad debt Relief

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Business owners know that some customers who receive credit never pay their account balances for reasons like their company went belly up (liquidated), or simply refused to pay. These uncollectible accounts are also called bad debts. Companies use two methods to account for bad debts: the direct write-off method and the Provision(allowance) method.
Initially, by analysing the detailed aging, you can see that a certain customer's account had been remained outstanding for very long, you may want to make provision for bad debt in the current fiananical period.

: Bad debt written off     Provision for Bad debt

There are 2 scenarios where bad debt expenses can occur. When the customer account is suspecting of turning bad (Provision for bad debt) or when it suddenly turned bad (Written off)


1) Provision of bad debt for overall customer aging as at the year end.
    You are providing 5% of the total customer aging as bad debt. In the General Ledger Journal,






Bad Debt Expenses        




Provision for Bad Debts




Being provision of bad debt for for debt more  than 180 days

Note: Do not include the GST amount during the provision.


To issue a Credit Note to Customer Due to Bad Debts (Direct Write-off)


Assuming one of the customer account had turned bad and the full outstanding amount is to be written off. There was a provision for bad debts in the previous financial period, now to be realised.





Provision for Bad debts




GST Input Tax




Trade Debtors Control - ABC





Step 1 : Enter the information from [1] to [7]

At [6], Change the tax code to [P] , for GST Form 5 , to be appear in box 7 as Input tax and refund claim



2) If there is no earlier provision of bad debt for this customer, and the account suddenly turned bad, Debit  Bad Debt account.

         O-B003 is bad debt expenses account

Related Topics

Tax code - S (Standard Supplies)


Print Credit Note


Provision for bad debts


GST report



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