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Doubtful receivables & Bad Debt

Posted byRudra Prasanna MohapatrainSAP ERP Financialson Jan 3, 2014 1:47:51 PM

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Doubtful receivables & Bad Debt :

Product Companies/Service Providers, using SAP, have a large customer base . Out of them

some may delay or default for payment, after the invoicing is done.

This leads to doubtful receivables and ultimately, if not payed , a bad debt.Lets understand this

with the below example.

A company has done a credit sale to a customer. Suppose the customer has gone bankrupt or has

been liquidated.In that case,first of all the

Company would classify the receivable amount as doubtful receivable.

Then after a particular time frame, it will create a provision for a certain percentage of the

receivable or the entire receivable . After this, there are 2 possibilities.

1. Customer will pay the money back

2. Customer wont pay the money back.

In each of the cases, the receivable amount needs to be cleared.

SAP provides specific functionality to map and handle this entire scenario.Given below are thedetailed steps.

1. Setting up a Special GL indicator and creating and assigning a particular GL account to it.

t code: FBKP

Maintain a Special GL indicator(say D) , which is to be maintained as the special gl account for

BAD Debt provisioning.

Then maintain special GL Account against the recon account.

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2. Define Provision method, timeline for reclassification and also the timing and percentage forthe reserve creation

t code:OB04 .

Define the Receivable Provision Methods.

In Per, maintain the month .

If 3 is maintained there, it would mean after 3 months of the item is due, this

item is due for being reclassified to a Special GL Account

In Months,maintain a value and in Perc 1, maintain a percentage.

Is 3 is maintained in Months1 and 50 is maintained Pec1, it would mean after 3 months of theitem is due,

50% of the due amount can be maintained as a reserve.

Same would apply for Perc2 and Perc3

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3. Define the Debit and Credit accounts for Provision for Doubtful Receivables

t code : OBXD

maintain the Bad Debt expense account in debit section and a Provision Account in Credit

section

3. Now run F103 .

It will create transfer posting , with the above provision method entered on selection screen . Letssee the accounting entries created for the same.

Initially, during the credit sale

Customer Dr 8000

Sales Cr 8000

Now if this has crossed the time line and is due for reclassification

F103 will run and this will post as below

Special GL Account Dr 8000

Customer Cr 8000(it will clear the customer item of step 1)

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4. Now run F104

If number of days in arrear, has crossed the time line and is due for provision posting

F104 will run and this will post as below

Expense Account Dr 8000

Provision Account Cr 8000

5. After this, there are 2 possibilities.

a. Customer may pay the money back

Cash Account Dr 8000

Customer Account Cr 8000(it will clear the Special GL account item of step 2)

Then run F104 again. It will reverse and clear the entry of step 4.

Provision Account Dr 8000

Expense Account Cr 8000

b. Customer wontpay the money back.

Expense Debit 8000

Customer Credit 8000

In the above entry, we have to knock off the customer spl gl entry and debit an expense account.

Then run F104 again. It will reverse and clear the entry of step 4.

Provision Account Dr 8000

Expense Account Cr 8000

F103 and F104, can set up as monthly batch jobs to handle the monthly doubtful receivables and

bad debts, if any.

This is how Doubtful receivables & Bad Debt are handled in SAP. Please provide your valuable

comments and suggestions.