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Using TurboCASH

 







BAD DEBTS
WRITE-OFF OF BAD DEBTS
  
Bad Debts are written off when the debts become irrecoverable during the course of the financial year. If you need to make provisions for bad debts (a fair estimate of the debts which is likely to become irrecoverable in future financial year), you should also write-off any debts, which are irrecoverable, since these calculations should be based on the good book debtors accounts. Bad Debts are usually written off in the General Journal. Since bad debts are a loss or expense for the business, it will reduce the net profit (or increase the net loss) of the business, you need to keep documentary proof (letters of demand, etc.) of the attempts to recover the bad debts.

This is also necessary if you are registered for VAT and you have to write-off bad debts for debtor accounts on which you already have paid Output Tax to the Tax Authorities. Before you may write-off bad debts for debtor accounts on which Output Tax was paid to the Tax Authorities in a previous Tax period, you need to create a Tax code (sub-account) in the Edit - Accounts - Tax Accounts menu option. In these cases, you need to write-off the bad debts to clear the Debtors Account with the amount of the irrecoverable debts (Inclusive of VAT), debit the bad debts expense account (exclusive of VAT) and debit the bad debts Tax code with the VAT amount. The VAT amount needs to be submitted on the VAT return - Tax on Adjustments (block 17 for South African based Users), which will reduce the amount payable to the Tax Authority.

The process consists of a few basic steps:
  1. Identify the Debtor Accounts, which are irrecoverable, and check whether you have sufficient documentary proof of attempts to collect the debt. (This should only be done after all avenues have been exhausted).

     

  2. If you are a registered VAT vendor, identify the Interest amount and the VAT amount of the Output Tax already paid to the Tax Authorities in a previous Tax period. This VAT amount may be for a full amount of a Tax Invoice or a number of Tax Invoices or it may be for outstanding amounts, if the debtor has made some payment on the Tax Invoices. The reason for this is to double check and make sure that the amount of the VAT, is correct.

  3. Write-off the Bad Debts in the General Journal.
To Enter the Bad Debts Written-off Transactions:

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 Writing-off of Bad Debt transactions, the Amount Entry field should be set to credit.
You could also generate a Debtor Statement or an Age Analysis report to check and calculate the VAT amount for those Debtor Accounts. Enter the following bad debt transactions in the General Journal:



Enter the Reference number you allocate to the write-off of Bad Debt transaction (it may in some cases refer to your authority number if authorised by the owner or manager, etc.), date, description, select the debtor account.

Select the No Tax code if you are not registered for VAT or if no VAT was applicable on the transactions. If you are registered for VAT, select the Bad Debts Tax code. Enter the amount for each debtor account 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 Debtor Account. Select the Tax code or VAT account for Bad Debts Leave blank. Enter credit amounts for accounts in this column. Scroll bar - scroll to view more transactions entered in the batch.

Note that the date should be the date on which the writing-off of bad debts was approved.

Click on the speed button or icon or press the key on your keyboard to balance the batch.

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 Debtor Account. Select the Tax code or VAT account for Bad Debts Leave blank. Enter credit amounts for accounts in this column. Scroll bar - scroll to view more transactions entered in the batch. TurboCASH will create balancing entries to the Bad Debts Account and to the Bad Debts Tax code.

TurboCASH will generate balancing entries to the bad debts (expense) account and the Output VAT account. If the Consolidate balancing option is selected in the Setup Options for this batch, the description for the balancing entries or transactions, will be displayed as "BALANCING ENTRY General Jnl". It is a good idea to overtype this description as it is not very meaningful to an outside auditor or accountant. If you overtype these it will definitely make it easier to trace and reconcile transactions.
  • Overtype the description with "Bad Debts Written-off" in the description column.

  • Overtype the description with "Output VAT on Bad Debts Written-off" in the description column.


  • Do not overtype the ******** as it will indicate that these are contra transactions.

 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:





If the Consolidate Balancing Entries option was not selected when the options for this batch was set, the individual bad debt transactions would have been listed or posted to the selected bad debts expense account.

It is not necessary to post or update the transactions at the end of each day. You may add your transactions on a daily or weekly basis and at the end of a month, you may post the transactions. When you have entered a few transactions, you may close or exit the batch. The data will not be lost.

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.