Bad Debts Recording

David Cousens davidcousens at bigpond.com
Thu Nov 7 07:20:42 EST 2013


Hi Omer,

The method Maf suggested is perfectly viable. The main purpose in using a
writing off a portion of your Accounts receivable to a Bad Debt expense
account on a regular basis is so that your income is not overestimated in
any given accounting period or sub period.  I.e., if your accounting
(reporting) period is annual you could estimate the bad debts at the end of
each month. The amount of your estimated bad debt is credited to the
Accounts Receivable account and debited to the Bad Debts expense account.

The amount you write off can be estimated using historical data to estimate
the fraction of your receivables which is uncollectable. There are also
methods based on the ageing of your receivables, i.e. the amount of your
receivables un collected at 30, 60, 90, 120 days etc.  after the receivables
became due. Best to see a text book on financial accounting for the details
of the methodology.

 It is also normal practice to adjust the estimated bad debts during the
period to match the known actual bad debts incurred during the period, at
the end of the period, when the actual bad debts for the period are better
known by writing off the difference between actual and estimated bad debts
to the Bad Debts expense account. Early in the accounting period you will
have accurate data for the bad debts but towards the end of it there will be
a greater uncertainty but it is a way of correcting if your debt collection
has been significantly better or poorer than your initial estimates. There
may also be seasonal variations which you can account for.

Regards 

David Cousens

-----Original Message-----
From: Omer Hayat [mailto:omer.hayat at outlook.com] 
Sent: Tuesday, 5 November 2013 4:48 AM
To: gnucash-user at gnucash.org
Subject: Bad Debts Recording

Hi.Some customers default on the complete invoice amount whereas some on
part of the invoice amount. After a set time period, these have to be
recorded as 'Bad Debts'. How to do it in GnuCash? Also, there is a
possibility the client pays later on, so how will that be recorded? Thanks.




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