Every class, someone asks “How are we supposed to write off Bad Debt or unpaid Receivables in SAP FI?”
Tough question. Should be easy, but….
With the Individual Value Adjustments (IVA) in SAP, the transaction allows the user to change the reconciliation account to a Uncollectible Reconciliation Account until it is settled or a credit is issued and matched to the unpaid item. Well I think that is how they use the functionality in IAS or IFRS countries of Europe.
I seem to believe, our North American Accounting office’s accrue Bad Debt as some factor each month or quarter end as maybe something like a periodic percentage of Sales. The Accounting Manager bases that accrual amount on some historical bad debt expense.
Documents seeking approval circulate through an Enterprise allowing the write off and then someone says: How do we write off this Bad Debt?
I thought I have suggested is to first create a new document type, oh something like “BD” for maybe Bad Debt. Post the credit to the customer’s account (I will let you figure out what you should debit and credit) but then use the Account Clear transaction and clear the Bad Debt Credit against the unpaid Bad Debt item(s).
Sounds easy enough.
I prefer creating the accrual posting to the Bad Debt Accrual; create a new BD document type. Then use the Incoming Payment Transaction in Accounts receivable. Put in your new Bad Debt Doc type in the transaction header, use the Bad Debt EXPENSE account (instead of where you would normally put in your Bank G/L account number and put in the amount of the total write-off. Perform the posting as normal. Maybe even get fancy and use a little quick text to indicate that this is a Bad Debt Write off so there is no confusion! Save and Voila!
At the end of the month, search for your SAP doc types “BD” (maybe a Document List from FB)# as a selection and there is your total monthly or quarterly bad debt write off totals!
Post your accrual against the Bad debt expense as an adjustment (Please use something other than doc type SA) and you have a neat, clean bad debt write off with a nice audit trail and even a few reports you can run to recap your Bad Debt history.
If you have any other thoughts on how you would write it off, share and let us know!
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