This document explains how to automatically create partial or complete write-offs (allowances) of doubtful debts in accounts receivable.
Doubtful debts refer to losses that may occur due to the customer's refusal or inability to pay an invoice. Calculating such estimated losses is a legal requirement and is usually performed as a part of the periodic routines.
An allowance for selected doubtful debts is recorded. A detailed allowance statement and an accounting journal with the totaled allowance amounts are printed. The statement contains the following information:
Customer number, invoice number, invoice date, due date, invoiced amount, VAT, outstanding recorded amount, depreciation percentage, depreciation amount, previous depreciated amount, and difference amount.
Customer invoices for which allowances have been made are still open for payment in accounts receivable.
The allowances can be viewed per customer in 'Accounts Receivable, Display Balances' (ARS225), using a column template containing value type 8.
Record the allowance for audit purposes and to make it possible to estimate potential customer losses. However, the allowance recorded does not affect the cash flow plans created in the Cash Flow Management component group.
The allowance proposal is saved in files FARDDP (name and selection criteria) and FARDDT (selected transactions).
The general ledger is updated. The basic account entries created in the balance file for accounts receivable (FSLBAL) are:
|AR70–360||Allowance for doubtful debts (balance account)||X|
|AR70–361||Allowance for doubtful debts (P&L account)||X|
|AR70–362(For reverting previously made allowances when payment is received.)||Reverted allowance for doubtful debts (P&L account)||X|
Define Selection Criteria and Creating Allowance Proposal
Define the selection criteria separately in 'Doubtful Account. Create Allowance' (ARS130). By using customer groups for the selection, for example, you can treat foreign and domestic customers separately. The proposal is then printed based on the criteria in the same program.
Adjust Allowance Proposal
Change the selection criteria in (ARS130), if necessary. You can also prevent invoices from being included in the proposal by assigning them a revised due date outside the age range in 'Customer Invoice. Change' (ARS201).
In both cases, you must create a new proposal.
Create Final Allowance for Doubtful Debts
When you specify in (ARS130) that the proposal should update the general ledger, the final allowance is recorded.
Payment made on invoice for which an allowance is created is credited to the next period when running the program the next time.
When it is evident that an invoice will not be paid, due to the customer going bankrupt, you manually write off the invoices in question in 'Customer Receipt. Record' (ARS110) by using a user-defined accounting option for that purpose. The account should be the same as used for the reverted allowances above.