Provide for bad debts

How to

Open: Customers > Enter Transactions > Provide for and correct Customer Bad Debt

Make provision for bad debts

1. Select the customer account using the Code, Postcode, or Short Name drop-down lists.

2. Select a transaction that you want to make provision for.

   To filter the list by transaction value, enter a value in the Select transactions with values up to box.

3. Click Make Provision. This opens a new window, displaying the nominal accounts for the transaction.
4. Click OK.
5. Repeat this for each transaction you want to make provision for.

Correct the provision for bad debts

1. Select the customer account using the Code, Postcode, or Short Name drop-down lists.

2. Select a transaction that you want to correct. Transactions that you've previously made provision for are indicated by W in the Qry column.

   To filter the list by transaction value, enter a value in the Select transactions with values up to box.

3. Click Correct Provision. This opens a new window, displaying the nominal accounts for the transaction.
4. Click OK.
5. Repeat this for each transaction you want to correct.

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Useful info

When to use this

When it becomes clear that a customer is not able to pay outstanding invoices you can write off the debt and claim back from HMRC any VAT you have paid. However, you can only reclaim the VAT once the debt is more than 6 months old. (This is the waiting period specified by HMRC and was six months as at January 2015.)

If the outstanding invoices are not yet old enough for you to reclaim the VAT, you can make provision for them. This moves the value of the bad debts from your P & L to your Balance Sheet, by posting a nominal adjustment to the Provisions for bad debts account on your Balance Sheet and the Bad Debt Expense account on your P & L.

About making provision for bad debts

Under HMRC rules you can reclaim VAT you have paid on a transaction once a debt is more than six months old. However, before the transaction is six months you can indicate that you intend to write this off. This posts a transaction that moves the value of the transaction from your Profit and Loss to your Balance Sheet. This is called making provision for bad debts.

When you make a provision for a bad debt you cannot then allocate a receipt to that invoice.

If the invoice is paid after you've made provision for it, you can correct the provision. This reverses the bad debt provision transaction and allows you to allocate a receipt to the invoice.

When the bad debt involves foreign currency transactions

When provision is made foreign currency transactions, the provision transaction is posted in your base currency.

To convert the value of the outstanding amount, the original exchange rate set on the invoice is used, not the current exchange rate (set on the Currencies and Exchange rates screen).

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What happens when I

Make a provision?

• The invoice is given a W query flag. This prevents a receipt being allocated to it.

• A transaction is posted to the following nominal accounts:

  Nominal Account	Debit	Credit
  Bad Debt Provision (Balance sheet)		Gross amount
  Bad Debt Expense (Profit and Loss)	Gross amount

  Note:

  If you have specified a cost centre and department for the default sales nominal account on your customer 's account, you must create a nominal account for bad debts with the same cost centre and department.

  For example, if a customer has a default salesaccount of 4000 MAN, the transaction is posted to the Bad Debt Expense account 9101 MAN on the P & L. If there is no bad debt nominal account with the relevant CC or CC / Dept combination, then this is posted to the suspense account.

Correct a provision?

• The W query flag is removed from the invoice.

• The following transaction is posted to the following nominal accounts:

  Nominal Account	Debit	Credit
  Bad Debt Provision (Balance sheet)	Gross amount
  Bad Debt Expense (Profit and Loss)		Gross amount

  Note:

  If you have specified a cost centre and department for the default sales nominal account on your customer 's account, you must create a nominal account for bad debts with the same cost centre and department.

  For example, if a customer has a default salesaccount of 4000 MAN, the transaction is posted to the Bad Debt Expense account 9101 MAN on the P & L. If there is no bad debt nominal account with the relevant CC or CC / Dept combination, then this is posted to the suspense account.