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1.     Summary

This document explains the accounting aspect of provision and bad debt write off. Case study is taken and steps to implement the same in SAP are explained in step wise manner with screenshots as and when required.

2.     Financial Accounting Aspect

  Scenario

   Company ‘Mango Inc.’ sold goods on credit worth 2000 INR to its customer ‘Slush Manufacturers’ on date 1st January 2013.

   Revenue side accounting entry for the above transaction

/wp-content/uploads/2014/10/1_562386.png

  • Mango Inc. management has decided that if receivables are not collected than provision for 50% of invoice amount needs to
    be done after 1 month. 
  • After 2 month provision needs to be made for entire 100% of invoice amount.
  • Bad debt needs to be written off after the said period.

  Bad debt accounting comprises of two steps.

  1. Create of provision for Bad debts
  2. Bad Debt Write off

  Accounting entries:

Other than customer account another three accounts are required for completion of such transactions.

  1. Bad debt write off (Balance Sheet Account)
  2. [Contra for Balance sheet] Bad Debt Account (P&L Account)
  3. Provision Bad Debt Account (Reconciliation Account)

After 2 months i.e. on 2nd March 2013, Mango Inc. wants to create provision for all unpaid invoices.

Financial entry for the above on 2nd March 2013:

/wp-content/uploads/2014/10/2_562387.png

Mango Inc. decides to write all the bad debts which impact their balance in below explained fashion.

            Financial entry for the same on 31st march 2013 will be:

/wp-content/uploads/2014/10/3_562394.png

3.          Implementation in SAP

The above accounting procedure can be configured and tested in SAP with below steps:

(a)    Steps in nutshell

  1. Transaction code : OB04 : To create Provision Type
  2. Transaction code :  FS00 : To create 3 G/L accounts
  3. Transaction code : OBXD : To configure Bad debts write-off G/L accounts
  4. Transaction code :OBXY : To configure special G/L Recon account
  5. Transaction code : FD01 : To create customer
  6. Transaction code : F- 22 : To post customer Invoice
  7. Transaction code : F103 : To create Provision for Bad debt
  8. Transaction code : F104: For Bad debt write off

(b)    Step 1: Provision Method

Transaction Code: OB04

Click on New entries button:

  • Enter 3 letters word under name of Provision type
  • Enter months and % of amount that needs to be provisioned

   With below setting we have configured ‘MAN’ provision type to write

  • 50% amount of invoice for provision after 1 month
  • 100% amount of invoice for provision after 2 months

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(c)    Step 2: Create GLAccount

Transaction Code: FS00

/wp-content/uploads/2014/10/5_562475.png

(d)    Step 3: Automatic Posting configuration

Transaction Code: OBXD

Enter chart of Account in Pop up window and click on green tick button

/wp-content/uploads/2014/10/6_562476.png

Enter G/L account number for the provision type which needs to be
debited and credited when the posting for write of debts is to be done.

/wp-content/uploads/2014/10/7_562478.png

(e)    Step 4: Special G/L account configuration

Transaction Code: OBXY

Select Account type ‘D’ and special GL indicator type ‘E’ row and
double click on that

/wp-content/uploads/2014/10/8_562480.png

Enter COA in pop up window

Enter Recon Account in column 1 and Special G/L account in column 2.

/wp-content/uploads/2014/10/9_562481.png

With reference to below setting when while posting to customer Account whose Recon account is mapped to 100001 posting will happen to 500011 when
special G/L indicator used is  ‘E’

/wp-content/uploads/2014/10/10_562483.png

(f)    Step 5: Create Customer

  Transaction Code: FD01

  Customer Number: 46

  Customer Name: Slush Manufacturers

  Configured Recon Account: 100001 (As mentioned in Step 2)

/wp-content/uploads/2014/10/11_562487.png

/wp-content/uploads/2014/10/12_562488.png

(g)    Step 6: Customer Invoice posting

  Transaction Code: F-22 to Post invoice

  Transaction Code: FB03 to view posted document

/wp-content/uploads/2014/10/13_562489.png

Report FBL5N to view customer open item

/wp-content/uploads/2014/10/14_562490.png

(h)    Step 7: Transfer posting for Doubtful Receivables

  Transaction Code: F103

  Enter Provision Method created in Step 1 as ‘MAN’

  Special GL Indictor as ‘E’ for which configuration is done is step 4

/wp-content/uploads/2014/10/15_562491.png

Execute the report and output will contain the document posted in step  6 as it crossed two months.

/wp-content/uploads/2014/10/16_562492.png

Documents are not yet posted, only session is created.

Go to Transaction code SM35 and process the session. Select the session and click on Process button.

/wp-content/uploads/2014/10/17_562496.png

Execute Customer Report by transaction code FBL5N

Document 1800000006 for amount 7777 INR posted in step 6 is cleared with document 1600000007.

/wp-content/uploads/2014/10/18_562497.png

Enter transaction code FB03 to open document 1600000007.

In above document its can be seen that Normal AR Recon account is credited and Special G/L account is debited.

/wp-content/uploads/2014/10/19_562498.png

This F103 transaction clears off the Accounts Receivables from Customer.

    Step 8: Provision for Doubtful Receivables

Transaction Code: F104

   Enter company Code and Customet Account as entered in step 7

  Enter provision method and special g/L indicator as ‘MAN’ and ‘E’

/wp-content/uploads/2014/10/20_562511.png

Execute the report. Customer invoice for 7777 will picked up and displayed in report output.However no postings will be done.

/wp-content/uploads/2014/10/21_562512.png

Go back and select checkbox for Generate Posting. Execute the report again

/wp-content/uploads/2014/10/22_562517.png

    

Execute transaction code FB03 and enter document number 100000003 posted above.

/wp-content/uploads/2014/10/29_562518.png

Transaction F104 does posting on balance sheet to write off all doubtful debts for which
provisioning is done in step 7.

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2 Comments

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  1. Carlos Martin

    Congratulations, very good explanation !!!

    But, when customer pay their open item, F-28, (which already in the provision for doubtful debt (result of F104)), do the systems reverse the provision?

    I think that the F104 transaction does not behave correctly:

       – How should I inform the selection parametres (dates) so that the system could find the paymet document?. I managed to reverse the provision but i don’t underestand how must I inform the selection parametres (dates)?

       – If the F104 transaction reverse the provisión, in the next execution the system generates a new priovisión for the payment (document).

    I don’t underestand anything.

    Can you help me please?.

    Regards,

    Carlos.

    (0) 

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