Legal debtors
When a debtor enters litigation, a separate process starts for bad debt provision or
write-off. All items for the customer's account are transferred to a legal status within
accounts receivable. A general ledger journal is effected between trade debtors and legal
debtors.
A provision for doubtful accounts, or bad debt reserve, is created as a reduction in accounts receivable. Bad debt reserve shows the value a company anticipates as being uncollectible.
When a customer’s debt is written off, the open items are cleared by posting their amount to the GL write-off account.