Impairment of trade receivables
A valuation allowance on trade receivables are covered by those of them for which there is a high probability that it will be paid off. Often it is assumed that if there are no overdue receivables, it is no problem with them being received and there shall be no further historical analysis conducted in respect of their possible impairment. However, write-downs on receivables should also refer to receivables that are not overdue, because some of them may become uncollectible in the future.
The value of receivables should be established taking into account the probability of payment. It is required to record allowance for impairment in respect of:
- receivables from debtors in liquidation or bankruptcy - the amount of receivables not covered by the guarantee or other collateral, reported to the liquidator or official receiver in bankruptcy proceedings,
- receivables from debtors in the event of dismissal of the bankruptcy petition, if the debtor's assets are not sufficient to cover the costs of the bankruptcy proceedings - the full amount due,
- claims disputed by the debtor and the debtor payment of arrears, and the assessment of economic and financial situation of the debtor and payment by the contractual amount is not probable - to the extent not covered by the guarantee or other collateral,
- receivables equivalent to amounts of booster charges in relation to which an impairment allowance - in these amounts until they received or written off,
- receivables past due or not past with a significant probability of defaults, according to the kind of business or client structure - the amount of reliably estimated impairment, including a kind of a general allowance for bad debts.
Impairment losses on receivables should be based on historical data, setting the first copy of the percentage (ratio), for the calculation of the allowance, and on that basis - a copy of the quota.
For more information on how to calculate the copy can be found on our free e - training.
The adopted method of determining the allowance for uncollectible accounts should be specified in the accounting policy. It should also be consistently applied in subsequent accounting periods.
Impairment losses on receivables are charged to other operating expenses or financial expenses (debit entry) - depending on the type of claims covered by the allowance. The corresponding entry (credit entry) is posted to your account Impairment of receivables (in analytical account of the counterparty).
No comments:
Post a Comment