Bad Debts

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
What are the entrys for bad debts and bad debts written off. What are the distinctions between the 2.<BR>I have noticed that my company reduces the total sales figure by the amount of the bad debt when preparing VAT Returns- is this allowed?<BR>Also a debtor complained that the work undertaken was not up to standard and so only paid half the inv amount-is the other half classed as a bad debt or do we issue a credit note?<BR>I understand that you guys at tech level cover this, hopefully you can help me out.<BR>Thanks

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Bad Debts

    You can either write off a bad debt completely, or create a provision for a debt which may get written off in the future.<BR><BR>Entries are:<BR><BR>1. Writing off a bad debt<BR> DR Bad debt write off a/c (in P&L)<BR> CR Debtors (B/Sheet)<BR><BR>2. Providing for a bad debt<BR> DR Bad debt provision a/c (in P&L)<BR> CR Bad debt provision a/c (in B/S)<BR><BR>With regards to (2), if you later decided you that the debtor was never going to pay (they may have gone bankrupt for example) then you would have totally write off the debt. The entry in the case would then be:<BR> DR Bad debt provision a/c (in B/S)<BR> CR Debtors<BR><BR>If you found that you'd provided for a bad debt but then the debtor paid up, you'd just reverse the entries in (2).<BR><BR>As regards your comment about customer querying an invoice, first of all you would need to investigate whether the customer is worthy of a refund (he may have been overcharged/incorrect goods sent etc.). In this case, its not a bad debt and the customer should be given a credit note.<BR><BR>Its only really a bad debt if you have provided goods/services which meet the customers requirements and they are just not bothering to pay.<BR><BR>Hope this helps :-)
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Bad Debts

    Hi nick,<BR>I have one thing to be concerned. You have noticed that your company reducesthe total sales figure by the amount of the bad debt . I am not too sure that is the right way to do it.From the VAT guide 18.5 ,it clearly says<BR>You may be able to claim relif from VAT on bad debts provided various conditions are met.<BR>The conditions have varied over time.The present rules mean that you can claim relief on any debts which are more than 6 months lod if you have:<BR>paid the VAT to customs and Excise<BR>written off the debt in your accounts;and sent a notification to the purchaser<BR>if you make a claim and laer receive payment,you must refund the appropriate amount to vat office<BR>and also i am wondering when you fill the vat return form,bad debts relief amount should put in input tax column not simply just reduce the sales figure;<BR>any thought please let me know ,<BR>good luck<BR>chaoliss

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