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Provisions for doubtful debts

This screen allows you to recognise a provision for doubtful debts (a customer who is not paying and whose payment you doubt) and to reverse it later, once the situation has been clarified. ‘Recognise’ reclassifies the receivable as a doubtful customer account and records the provision; ‘Reverse’ makes the reverse entry.

What it is for

When a customer is uncharacteristically late in paying and recovery is uncertain, accounting rules require a provision to be recognised: this reflects, in the accounts, the risk of never being paid, without waiting for the loss to become certain. In practical terms, the screen reclassifies the receivable from the ordinary trade receivables account (411) to a doubtful trade receivables account (416), and records a provision (expense 6817, provision 491) for the amount you estimate to be at risk. If the situation is resolved later (the customer pays, or the receivable is ultimately written off), you ‘reverse’ the provision: the reverse entry (491→7817) is posted and the status changes from Active to Reversed. This screen is a business shortcut within general ledger accounting: it avoids having to enter the journal entries manually for this common scenario.