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Hi,
Firstly my thanks for the lectures, they help me a lot!
I have a question conserning the above issue, I post it in the notes under the lectures before I realize that I could ask you.
So my question is : Can we clasify a Customer debt as that and can we provide?
If we know at the YE that he will not pay his oblications as he has default, I mean before the YE?
It is a past event and show it as income for this year would be wrong as we are certain that we will loose our income.
Thank you.“It is a past event and show it as income for this year would be wrong as we are certain that we will loose our income.” – you really must be a lot more careful in your use of words! It will not be shown as Income – it’s an expense.
In addition you say :”we are certain that we will loose our income.” No we will not lose our income! What we will lose is our asset and it needs to be reclassified as an expense.
Further, you say “Can we clasify a Customer debt as that and can we provide?
If we know at the YE that he will not pay his oblications as he has default, I mean before the YE?” If we know at the year end that the customer will not pay his obligations then why are you making a provision for this amount? Surely you should be writing the debt off as BAD ( Dr Bad debts, and therefore the expenses in the Income Statement and Cr Accounts receivable )- Topics: 1
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You are right, I will be more careful in my use of words.
But can we write off the debt as bad debt before the legal period passed, I think it is 6 months in UK or this is only applicable only for the VAT claim?
If in the YE we are certain that the customer will default but he has not declaired banckrupt yet, can we still write the debt as bad or we need to provide for losing this Asset? This is the point that I am confused…
Thank you.
Probably provide for the debt as being doubtful. It actually has the same effect!
If writing off as bad, Dr Income Statement and Cr Receivables.
If providing because of doubt, then Dr Income Statement ( via the bad debts account ) and Cr Provision.
In both situations, the expense will go through this year’s Income Statement
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Thank you very much I now understand
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