Provision for Bad debts

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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.

: Provision for Bad debt

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

 


 

Related Topics

Bad debt written off

 

 

 

 

 

 

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