You are on page 1of 4

Doubtful receivables & Bad Debt

Posted by Rudra Prasanna Mohapatra in SAP ERP Financials on Jan 3, 2014 1:47:51 PM
inShare1
Tweet
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 the
detailed 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.



2. Define Provision method, timeline for reclassification and also the timing and percentage for
the 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 the
item is due,
50% of the due amount can be maintained as a reserve.
Same would apply for Perc2 and Perc3

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 . Lets
see 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)

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 wont pay 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.