Can a bed debt provision be negative???

TomRooney

I need help with this and I'm hoping someone on this forum might be able to help in some way.

Here's my issue.

Bad debt provision x % 258,000 5%
Less bad debt provision per TB

12900

15000

= -2100

This a negative bad debt provision, do I still put it on the profit loss account as an expense or deduct it from the profit loss expenses?

Also should I deduct this negative bad debt provision from the bad debts instead of adding it to them on the balance sheet???

I hope someone can shed some light on this, any insight at all would be much appreciated.

Thanks you.

Cereal Number

STEP ONE:
Your new bdp is what you calculated, this is subtracted from debtors in the balance sheet


STEP TWO:
If this years bdp is less than last, INCOME*
If it is higher than last year, an EXPENSE*


(*the difference between the two)
Forget what anyone else says, im making it simple for you

collegeme

You are trying to reduce your provision so the negative will come off the higher figure on the p&l to be left with the lower figure.

Sunny Dayz

Yes a bad debt provision can be negative. You have previously provided for the write off of debts and same has been recorded as a expense of the business in the Income & Expenditure a/c. However, now some of these debts are now deemed collectible or have been collected post year end so therefore this is a reversal of the expense you had in the I&E in the previous year, or is now income of the company. I think most I&E a/c's show the reduction in the bad debt provision as a negative figure included in admin expenses rather than showing it in other income.

T L

You can't have a negative bad debt provision. What you can have is a negative movement in the provision. There's a difference.

Each year you calculate the bad debt provision based on your debtors at year end. You ignore the bad debt provision currently sitting on your trial balance. Once you've calculated the provision, you then see if it's higher or lower than the provision you already have on the TB.

If it's higher, then you are effectively saying "I have more bad debts that I need to provide for" => expense. If it's lower, you're saying "I now have less bad debts than I previously thought" => income.

For the balance sheet side, you take your gross debtors, then subtract your current year calculated provision in full from the debtors, to give your net debtors at year end.

For the profit and loss account, the only thing that ever hits the p and l in respect of a bad debt provision is the movement that we mentioned above. If you have an expense (an increase in the provision), it's a normal expense. If you have effective income (a decrease in the provision), you put it in the exact same place on the p and l, but it's a negative figure. So it's a negative figure in the expense section => income.

Hope that makes sense!

TomRooney

Thank you all for the great explanations, but just to be sure, I would add the decrease in BDP to my other income in the P+L and still deduct it from my expenses? Or just add it to my other income, leave it in the expenses with a - beside it and not deduct it from expenses?

Cereal Number

TomRooney wrote: »

Thank you all for the great explanations, but just to be sure, I would add the decrease in BDP to my other income in the P+L and still deduct it from my expenses? Or just add it to my other income, leave it in the expenses with a - beside it and not deduct it from expenses?

Read my post again

TomRooney

Cereal Number wrote: »

Read my post again

I have and it's a great help, but for some mysterious unknown reason I can't seem to get my balance sheet to balance...I must be doing a few things wrong..

jjjd

TomRooney wrote: »

Thank you all for the great explanations, but just to be sure, I would add the decrease in BDP to my other income in the P+L and still deduct it from my expenses? Or just add it to my other income, leave it in the expenses with a - beside it and not deduct it from expenses?

Don't add it to income! The P&L charge for the period will be a credit figure on the face of the P&L (under your list of expenses for the period). It should have brackets around it to indicate it's a credit figure for this period.

j@utis

TomRooney wrote: »

I have and it's a great help, but for some mysterious unknown reason I can't seem to get my balance sheet to balance...I must be doing a few things wrong..

As for the end of the year accounts every adjustment you do you have to do them with the balance sheet in mind (SFP I should say).

As per trial balance you receivables are:
258,000-15,000 = 243,000
Now your allowance for receivables changes to 12,900 =>
and your new receivables figure is:
258,000-12,900 = 245,100

Do you the difference in the figure? => it's increased by 2,100.
Now think where your receivables are on the SFP?
yes, they're on the top with all other assets, so your total assets figure is up by 2,100 and for it to match the bottom figure (Capital+Liabilities) you need to affect something in there, and that'd be your net profit. By including a negative movement in allowance of (2,100) into your expenses in SP&L, your reduce your expenses and increase your net profit and therefore your balance sheet is happy again.
This applies to every other adjustment you do.

I'm preparing for iati exams in May and what it comes to financial accounting: the end of year accounts is my 2nd favorite question, after depreciation of course, which is just lovely.

TomRooney

j@utis wrote: »

As for the end of the year accounts every adjustment you do you have to do them with the balance sheet in mind (SFP I should say).

As per trial balance you receivables are:
258,000-15,000 = 243,000
Now your allowance for receivables changes to 12,900 =>
and your new receivables figure is:
258,000-12,900 = 245,100

Do you the difference in the figure? => it's increased by 2,100.
Now think where your receivables are on the SFP?
yes, they're on the top with all other assets, so your total assets figure is up by 2,100 and for it to match the bottom figure (Capital+Liabilities) you need to affect something in there, and that'd be your net profit. By including a negative movement in allowance of (2,100) into your expenses in SP&L, your reduce your expenses and increase your net profit and therefore your balance sheet is happy again.
This applies to every other adjustment you do.

I'm preparing for iati exams in May and what it comes to financial accounting: the end of year accounts is my 2nd favorite question, after depreciation of course, which is just lovely.

I already solved my problem but thanks for the great explanation.
The only thing I will say is I didn't have to reduce my liabilities by 2100.
I was getting stuck on prepayments, instead of differentiating between pre paid income and pre paid liabilities, I lumped them all together which led to me being unable to balance the accounts....a tricky little one but it's sorted now.

Cheers for the help anyway.