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Doubtful Debt

This article is protected against manual editing because it is automatically generated from Openbravo meta-data. Learn more about writing and translating such documents.
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Contents

Introduction

Doubtful debts are those debts which the company is unlikely to be able to collect. Moreover a doubtful debt becomes a bad debt when there is no longer any doubt that the debt is noncollectable, therefore:

Doubtful debts are useful in order to make provisions for possible looses beforehand.

User Story

The following example illustrates how Openbravo manages Doubtful Debts posting to the ledger.

The Client Healthy Food Supermarkets, Co. whom owes the company 1,000 EUR is going through a difficult situation, hence it's debt is considered doubtful.

Account Debit Credit
Doubtful Debt Account 1000
Customer Receivables 1000


Account Debit Credit
Bad Debt Expense Account 1000
Allowance For Doubtful Debt Account 1000

The Client Healthy Food Supermarkets, Co. makes a Payment of 350 EUR:

Account Debit Credit
In Transint Payment IN Account 350
Doubtful Debt Account 350


Account Debit Credit
Allowance For Doubtful Debt Account 350
Bad Debt Revenue Account 350

Later, the client becomes bankrupt, so it's debt is considered bad:

Account Debit Credit
Write-off 650
Doubtful Debt Account 650


Account Debit Credit
Allowance For Doubtful Debt Account 650
Bad Debt Revenue Account 650

Configuration

Before start working with Doubtful Debt some previous configuration steps are required:

Example

This example is based on the previous User Story, using the demo data provided by Openbravo.

The Customer Healthy Food Supermarkets, Co. has an Invoice of 1.000,00 USD pending to be collected, and this is it's Journal Entry, created when Posting the Invoice

DDInvoicePosting.png

After three months without collecting the pending debts from this Customer, the debt from the previous Invoice is considered Doubtful, henceforth a Doubtful Debt Run needs to be created and processed.
As shown in the image below, the "Run Date" and the "Accounting Date" are the same, that is 90 days after the Invoice Date, as well as the Days Overdue.

DDDoubtfulDebtRun.png

Back to the Doubtful Debt Window, the doubtful debt created and processed in the Doubtful Debt Run can be posted. Two entries are generated in the Journal.
One to reclassify the debt from Accounts Receivable to Doubtful Debt and the other one to represent the provision for the Doubtful Debt.

DDDoubtfulDebtPosting.png

A couple of days after, the Customer makes a Payment of 350,00 USD against the previous Invoice, and the Posting of the Payment creates this entries in the Journal.
One entry that balances the Doubtful Debt and the Checking In-Transfer Account, and the other entry that decreases the Doubtful Debt provision generated previously.

DDPaymentPosting1.png

Three months later the Customer becomes bankrupt, therefore it won't be possible to recover it's debt any longer. A Payment is made to write off the amount remaining.
That action creates another two entries in the Journal.

DDPaymentPosting2.png

Doubtful Debt

Doubtful Debts are defined in the Doubtful Debt Run Window. After being created, a record will appear in the grid of this Window.

WS9D859A2A50F44562AFA21AAF2DF91B8A.png

Fields to note:

Possible Actions:


Account Debit Credit
Doubtful Debt Account Doubtful Debt Amount
Customer Receivables Doubtful Debt Amount


Account Debit Credit
Bad Debt Expense Account Doubtful Debt Amount
Allowance For Doubtful Debt Account Doubtful Debt Amount

Accounting

Accounting information related to the doubtful debt

For more details please review the accounting article.



Full list of Doubtful Debt window fields and their descriptions is available in the Doubtful Debt Screen Reference.

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