Some debts owing by customers may be suspected to be turning bad, your auditor or you may want to provide for bad debts.
Do note that if there are GST output tax in the amount, you are not allowed to claim the GST (reverse) in the provision journal entry.
: There are 3 methods to arrive at the provision for bad debts.
At [A/c Entry], click [GL Journal]
Click [Add]
1. Identifiable invoice. This would be easy. If invoice number 24455 is $10,000 (not including GST) and is likely to turn bad, you can provide for this full invoice amount.
Dr Bad debts expense 10,000
Cr Provision for bad debt 10,000.00
(Being provision for bad debt of invoice 24455, having dispute in the delivery)
2. Identifiable customer but not invoice
Dr Bad debts expense 2,450
Cr Provision for bad debt for ATD 100.00
Cr Provision for bad debt for ABC 2,000.00
Cr Provision for bad debt for CDE 350.00
(Being bad debt expenses provided for the above customer)
3. Based on the customer aging report column total by %.
Refer to customer aging report, example If more than 4 months total is 956,448, you may want to provide for a 5% provision of bad debts of $956,000
Dr Bad debts expenses $47,800
Cr Provision for bad debts $47,800
(Being provision for bad debt of 5% based on aging report of > 120 days of $956,000)
Note : As this is just a provision, it need not be calculated based on exactly $956,448.35 x 5% (or $47,822.42) since the variant of $22.42 is insignificant to the $956,448.35
When the debt actually turn bad, click here to learn how to issue a Credit Note to the customer's account and Debit your provision for bad debt
Next, go to Provision for Audit Fee
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http://realtimme.cloudapp.net/basic/index.html?Provision_Bad_debts.htm
