Adjustment of Reserves for Bad Debts

To adjust the amount of accrued reserve, it is necessary to create a Reserves for Bad Debts document for the next reporting period.

Note
Customer transactions must be applied at the time the reserve is calculated to avoid unnecessary charges. Therefore, if there is an unapplied payment or credit note on the customer that can potentially completely cover all open accounts and refunds (considered in the context of contracts and the possibility of setting up App. With Agreement on the Customer Card), the system will not create reserve lines for these transactions.

During the calculation of of the amount of the reserve, the analysis of the term of the current debt is occurring, the already accrued amounts of the reserve and the corresponding doubtfulness coefficient are determined. When the limit value of the reserve amount is reached, further accrual does not occur.

Example The Bad Debt Risk Coefficient for a period of 30 days is 5%. And for a period of 60 days and more it is 10%. In the first quarter, the Customer had 30 days of outstanding invoices in the amount of UAH 10,000. Accrual of the Reserve for Bad Debts was carried out in the amount of 500 UAH (10,000 x 5%). In the second quarter, the Customer has a debt of more than 60 days and the maximum Bad Debt Risk Coefficient should apply to it. The amount of the reserve will be recalculated as follows: 10 000 x 10% - 500 UAH (accrual of the 1st quarter). As a result of the calculation we get 500 UAH of current accrual. In general, at the end of the 2nd quarter, a reserve of UAH 1,000 will be formed for the Customer, which is the maximum value in accordance with the Risk Coefficient. In the 3rd quarter, the accrual of a Bad Debts Reserves for this Customer will not be carried out.

In case of payment of debt, the accrual of the reserve occurs with the opposite sign (-).

Example In the first quarter, a Reserve of Bad Debts in the amount of UAH 500 was accrued. In the second quarter, the Customer fully paid their debt. The Reserve of Bad Debts will be calculated with the opposite sign, that is, it will be charged -500 UAH.

Useful links

Managing receivables Bad Debts Reserves creation Bad Debts Reserves setup