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BAD DEBTS
CREATE PROVISION FOR BAD DEBTS
  
Usually, at the end of the first year of your business existence or when you have implemented such accounting policy, you need to create provision for bad debts or provision for doubtful debts. Before you may estimate or calculate the provision for bad debts, you need to identify the irrecoverable debts, which you need to write-off as bad debts. You may wish to calculate the amount for the provisions on the following methods:
  1. Estimates or calculations based on the age analysis schedules of your debtor accounts.


  2. Estimates or calculations based on the total outstanding debt.


  3. Estimates or calculations based on the total sales on credit.
In any consecutive years, you need to revise the amounts of any provisions made or created in the previous year. You may need to increase or decrease the amount of the provision. This is necessary to ensure that the provisions calculated are in line with any fluctuations in your credit sales and outstanding debts. This provision will have an effect on your Income Statement (Profit or Loss).

To Create Provision for Bad Debts:
Click on the speed button or icon. You may also press the key on your keyboard. Alternatively you may press the and and keys on your keyboard. The Batch Type screen will be displayed.
Select the General Journal from the list displaying the available Batch Types and click on the button. The Batch Entry screen for the General Journal will be displayed.
 If no contra account or if any other account than the Bad Debts (Expense Account) is displayed on the Batch Type selection screen, you need to set the options for the batch. If you have not yet set the General Journal batch up, or if your requirements should change, click on the speed button or icon. Note that for the Provision for Bad Debt transactions, the Amount Entry field should be set to allow both.
Enter the Reference number you allocate to the Provision for Bad Debt transaction, date, description, select the Bad Debt expense account, select the No Tax code and enter the amount in the debit column. For the second line, select the Provision for Bad Debts account and enter the amount in the credit column.
After entering the transactions in the General Journal, the transactions will be displayed as follows:

Minimise button - inactive. Restore button - click to display this screen to full size and click again to restore it to its original size. Title bar - double-click to display the screen in full size or to return to the normal size. Title bar. The name of the selected batch. Title bar. The Alias for the selected batch. Close button - Click to close or exit this screen. Click to delete a selected transaction. Click to insert a row or line above a selected transaction. Click to balance the batch, if the batch is not already in balance. Click to post or update the transactions to the ledger, if the batch is in balance. Click to enter transactions Inclusive or Exclusive of VAT. Click to list the entries or transactions entered into the batch. Click to access more processing options for the batch. Click to set the Options for this batch. Enter the reference number for the transaction. Enter or select the date of the transaction. Enter a description for the transaction. Select the Bad Debts account for the debit transaction and select the Provision for Bad Debts account for the credit transaction. Enter the debit amount for the Bad Debts account. Enter credit amount for Provision for Bad Debts account. Scroll bar - scroll to view more transactions entered in the batch.
It is not necessary to balance the batch, since the debit and credit transactions you have entered should already be in balance.
 Click on the speed button or icon or press the key on your keyboard to change the alias. This will help you if you wish to identify a specific batch, if you wish to generate a batch type report or if you wish to export posted batches to a file.
Click on the speed button or icon or press the key on your keyboard to list the batch. It is a good idea to list the batch and check the entries on the batch thoroughly. If there are any errors, you may edit the batch before posting the batch.
Click on the speed button or icon or press the key on your keyboard to post the batch. TurboCASH will post the entries to debit the total of the bad debts written-off (excluding VAT) to the bad debts expense account and credit the selected debtor accounts. The posted transactions will be displayed as follows in the debtors' ledger and the general ledger accounts:




In larger concerns, the provision for bad debts or doubtful debts may be done on a regular basis (e.g. monthly or a six monthly basis), while most businesses makes provision on a annual basis.



The Tax legislation and practice notes issued by your Tax Authorities give guidelines to calculate or estimate any provisions. If you use any method to calculate the provision, you need to be consistent with the method in the consecutive years.



Before you wish to post the batch, please ensure that you have checked the transactions and that you have changed the alias, print a list of the entries in the batch.