pdd accounting for bad debts and writeoffs (bdar2160)

7/24/2019 PDD Accounting for Bad Debts and Writeoffs (BDAR2160)

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Process Definition DocumentAccounting for Bad Debts and Writeoffs

Author: IBM

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Version: 1.0


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Process Definition Document

Document ManagementThis is a snapshot of an on-line document. Paper copies are valid only on the day they are printed. Refer tothe author if you are in any doubt about the currency of this document.

Project ID: BDAR!"#Title: Accountin$ for Bad Debts and %riteoffs&tatus:

Release: Business '(ner: Team:

Author:

Data )reated: )reated By:

Client OrganizationThis document re*uires pertains to the follo(in$ components of the client or$ani+ation:

Versioning

The follo(in$ document versions have been released:

Version Date Description Revised By

Approvals

This document re*uires the follo(in$ approval si$natures:

ame !itle "ignature Date

Attac#ments

otes

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Contents!. Document Details...................................................................................................../

!.! 'vervie(......................................................................................................................................./

!. Process odel...............................................................................................................................

!.0 Process &teps............................................................................................................................. !0

!./ &uppliers1 Inputs1 'utputs and )ustomers..................................................................................0

!. Re*uirements..............................................................................................................................0

!." Ris2s and 'pportunities............................................................................................................../

. 'r$ani+ational )han$e...........................................................................................

.! 'r$ani+ation )han$e Impacts.....................................................................................................

. Business Benefits........................................................................................................................"

.0 Business Reali+ation................................................................................................................... 3./ 4ey Performance Indicators........................................................................................................5

. 6nablers...................................................................................................................................... 5

0. Desi$n.....................................................................................................................7

0.! 4ey Desi$n Decisions..................................................................................................................7

0. Inte$ration )onsiderations...........................................................................................................00

0.0 Application 8APs.........................................................................................................................0/

0./ Data &tandards 9eeds................................................................................................................0

0. Re$ulations and )ontrol 'bjectives............................................................................................0

/. Testin$.....................................................................................................................0"

/.! &cenarios.................................................................................................................................... 0"

. Trainin$...................................................................................................................03

.! Business Process Procedures.....................................................................................................03

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$% Document Details

$%$ Overvie&This chapter identifies the document and the business environment to (hich it relates1 describes the contentsof the document1 and states its purpose.

Description

&ummary

This document describes the system currently used by )I69T to (rite-off baddebts and accountin$ for ban2ruptcies. The frei$ht and non-frei$ht operations havedifferent procedures and this document details the standard procedures to be usedin &AP.

!riggers

Dependencies

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$%' Process Model

This chapter contains a detailed process model outlinin$ all major steps and decision points involved in thisprocess ; process variant.

Proposed e& Processes

D e f e r r e d R e c e i v a b l e s - R e f e r r e d t o ) o l l e c t i o n A $ e n c y ; e $ a lD e p a r t m e n t

a s t & a v e d : < u l y ! # 1 ! 7 7 3 ! ! : 7 A d r a ( i n $

) P R a i l P r o j e c t P a $ e ! o f !

A R D e p t

) o l le c t i o nA $ e n c y

D e t e r m i n e t h a t t h er e c e i v a b l e s h o u l d b e

d e f e r re d = c o u l d b e a ta n y t i m e d u r in $ t h e

t r a c i n $ p r o c e s s >

D i s c u s s s i tu a t i o n ( i thc o m m e r c i a l . A s s e s s

c o l l e c t i b i l i ty o f t y p e o f c h a r $ e = d e m u r r a $ e >

) o m m e r c ia l I n f o r m e d o f t h ed e c i s i o n t o

m o v e c u s t o m e r a c c o u n t ;i n v o i c e t o

d e f e r r e d

R e s p o n d b a c 2 t oA R d e p t ( i t h in b u s i n e s s d a y s t os t o p t h e d e f e r r e d

r e c e i v a b l e p r o c e s s

? a s ) o m m e r c i a lr e s p o n d e d ( i t h in b u s i n e s s d a y sI s t h e c u s t o m e r

a f r e i $ h tc u s o t m e r @

e s

e s

D o n o t s e n d t oc o l l e c t i o n

a $ e n c y ; l e $ a ld e p t

9 o

I s t h er e c e i v a b l e C 1 # # # o r a

m i s h a p

9 o

R e c e i v ec u s t o m e r

a c c o u n t ; i t e m

) r e d i t D e p t

& e t d u n n i n $b l o c 2 a t t h e

c u s t o m e r l e v e l

e s

R e c e i v ec u s t o m e r

a c c o u n t ; i t e m

R e v i e ( o n - l in e t h ep r o $ r e s s o f

c o l l e c t io n a $ e n c y ;l e $ a l d e p t o n a* u a r t e r ly b a s i s

& e n d c h e * u e ;l e t t e r in d i c a t i n $s t a t u s i n v o i c ef o r c o m m i s s io n

e s

P a y m e n tA p p l i c a t io n = $ r o s s

p a y m e n t a $ a i n s tc u s t o m e r a c c o u n t E

c o m m i s s io ne F p e n s e >

9 o

D e t e r m i n e i f th ei n v o i c e s h o u l d b e

r e v e r s e d = c l e a r e d > -c o r r e c t i o n o f e r r o r E

c h a r $ e b a c 2 a $ a i n s ts a l e s

e $ a l D e p t

) a n c e l c r e d i t

I s t h er e c e i v a b l e

C ! # #

e s

9 o

9 o

D id) o m m e r c i a l

a $ r e e t o d e f e r 9 o

e s

B

)

customer specific =set aspecific C allo(ancebased on receivablesassociated (ith hi$hris2 customers>

industry specific =set aspecific C allo(ance forhistorically hi$h ris2industry $roups>

collection a$encies le$al =!##J allo(ancefor customers identifiedas Mtype "N>

The level is adjustedonce annually in 'ct or

later1 but before year-end unless theadjustment re*uired ismaterial to the entity.

An analysis isunderta2en1recommendations tomana$ement are sent

!#e general provision fordoubtful accounts is

calculated based onapplying a fi4edpercentage against t#ereceivable outstandingt#at are not currentlydeferred% !#is fi4edpercentage is derivedfrom past e4perience andaverages bet&een 556and 556% As C,-.! isimplementing non(freig#tAR initially7 t#e fi4edpercentage &ill be 5567ic# is representativeof 55%

The bad debt eFpense (illbe recorded in ic# costcenter.

DR. Bad Debt 6Fpense

)R. Allo(ance forDoubtfulaccounts

Any recovery ofreceivables provided for(ill be recorded a$ainstthe bad debt eFpense andallo(ance.

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Description on(*reig#t !reatment *reig#t !reatment "tandard Process

as soon as it is 2no(n thatan account is uncollectible itshould be (ritten off or(ritten do(n to its estimatedreali+able value. To do soprepare the (rite-off formand eFplanation and submitalon$ (ith complete file tothe &enior )ollection )ler2=this eFcludes accounts(hich are to be referred tothe a( department forcollection1 see Referral toa( Departmentprocedures>.

the &enior )ollection )ler2

(ill revie( the file and eitherapprove for (rite-off and;or(rite do(n to C!.## andma2e recommendations onthe (rite-off form and passon to the Assistant ana$erfor his;her approval. If notacceptable the &enior)ollection )ler2 (ill returnthe file to the )oordinatorsfor further handlin$.

the Assistant ana$er (illma2e recommendations and

approve and pass on to theana$er and;or return thefile for further handlin$.

and adjustments made(hen approval isreceived. A separateprovision is establishedfor each entity.

Apart from the acct$entries a$ainst baddebt eFpense (hichresult from provisionadjustments1 items are(ritten-off on a re$ularbasis throu$hout theyear (hen it is

determined they areuncollectible and (henapproval has beenreceived to do so. )R ista2en in appropriateentity a$ents suspense(ith DR to the entityOsbad debt eFpense. AnytaFes included (ouldbe recovered at thistime.

&uch items above mayor may not have beenincluded in theprovision. 9onethelessno entries for theprovision are ta2enunless the amount ismaterial in relation tothe entity involved.

DR. )ash

DR. Allo(ance for DbtflAcct

)R. Bad Debt 6Fpense

)R. )ustomer Account

!#ere is a need to #avea specific and generalaccount to segregate t#etypes of provision%

Any receivables

determined to beuncollectible1 or sent to acollection a$ency ; le$aldepartment (ill becompletely provided forand (ill be part of thespecific provision.

A report (ill be producelistin$ those receivablesthat have been providedfor. This report (ill beprovide a continuityschedule of the itemshittin$ the bad debteFpense and allo(ance fordoubtful accounts.

or frei$ht items1 theprovision for bad doubtful accounts is setbased on the follo(in$:

a$e of receivables =!#J of7!-!5# a$e total1 0#J of

!5!-3# a$e total1 "#J of3!-0" a$e total1 7#J of0"L a$e total>

customer specific =set aspecific C allo(ance basedon receivables associated(ith hi$h ris2 customers>

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industry specific =set aspecific C allo(ance forhistorically hi$h ris2industry $roups>

items (ith collectiona$encies or le$al =!##Jallo(ance for itemsreferred>

Also1 frei$ht items (ithcollection a$encies 1 etcare not (ritten-offimmediately and must beavailable for vie(in$ by the

)&.

Authority for %rite-'ff less than C1## Assistantana$er Accountsreceivable

less than C1### ana$erAccounts Receivable

less than C!#1### ana$er6Fpenditure Accountin$

over C!#1### 6Fecutive icePresident )hief inancial'fficer

To record (aivin$ ofoutstandin$ for businessreasons

Dr. 'ri$inatin$ R9 andAccountQQ arious

)r. Accounts Receivable);R#3DA0

less t#an 8'9$Collection "pecialist

less than C1##!ana$ers

$reater than C1###and less than C#1##!Director

$reater than C#1###)omptroller

6ntries are processedby a separate $roup(hich1 for audit andcontrol purposes1 doesnot include any of theabove positions.

Write(offs can arise fromt#e follo&ing situations3

small balance differences=ie: less than C7.77bet(een the invoiceamount and the paymentamount> (ill beautomatically (ritten-off bythe system durin$ paymentapplication.

if the receivable is lessthan C!## )AD1 it (ill be(ritten-off by the collectioncler2 instead of bein$ sentto a collection a$ency orthe le$al department. TheC!## is the estimatedthreshold (here )I69Tcosts to collect thereceivable is e*ual to thepayment of the C!##.

There (ill be eFceptions(here (e (ill (ant to

pursue such items (ith acollection a$ency.

if the collection a$ency orle$al department cannotcollect and the receivableis C# or less1 thecollection specialist (ill(rite-off the receivable. If

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the receivable is $reaterthan C# and less thanC1##!1 then themana$erOs approval isre*uired. If the receivableis C1### and GC#1###1 then theDirectorOs approval isre*uired. If C#1### the)omptrollerOs approval isre*uired.

business decision to (rite-off the receivable. Thismay occur if the operations; en$ineerin$; commercialcannot substantiate the

char$es or have made thedecision to reverse thechar$es as a $esture of$ood faith =the receivableis due from a heavyvolume;)HRR69)customer>.

ne$otiated settlements

ban2ruptcies if )I69T isnot a secured creditor.The basis of this decisionis that )I69T does nottrace ban2rupt accountsand technically thecreditors do not receivemuch.

%e do trace ban2ruptsdependin$ oncircumstances.

%here does the cost $oto@

By ma2in$ the approvallimits hi$her than in thecurrent process1 mana$ers

can concentrate on thosereceivables that re*uiretheir attention. To monitorthe receivables bein$(ritten-off1 a report (ill becreated in &AP in theformat of a continuityschedule.

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The accountin$ entries fora (rite-off are:

DR. Bad Debt 6Fp - %rite-off

)R. )ustomer Account

Accountin$ entries for taFrecovery are ta2en at timeof (rite-off I a reserve isnot created for the item. Ifa reserve is created thenrecovery ta2es place (henthe reserve is removed.

If a (ritten-off amount isrecovered1 then

DR. )ash

)R. Bad Debt 6Fp - %rite-off

If (rite-off included taFesthen recovery must reverse

that condition based ontaF rate in effect on ori$inalinvoice.

Referral to a)ollection A$ency ;e$al Department

%hen all alternatives ofcollections have beeneFhausted and there are nocircumstances surroundin$the account (hich (ouldma2e the referral to a)ollection A$encydetrimental1 e.$. sensitivecustomers1 the )ollection)oordinator=s> must:

submit the account for (rite-off approval usin$ the (rite-off form to the &enior)ollection )oordinator forproper approval and;orother approvals =see

Authority for (rite-offs>

Collection "pecialistoutlines a plan ofaction based oncircumstancessurrounding eac#case

Plan is revie(ed forapproval at appropriatelevel based on policy

$uidelines)ommercial is advisedof plan and $iven timeto comment1 object1 etc.

)ompanyOs decision isrelayed to the customer

If situation is still not

!#e proposed processdoes not &rite(off t#ereceivable at t#e timet#at t#e receivable issent to t#e collectionagency : legaldepartment% At t#e timeof transferring t#ereceivable to a collectionagency : legaldepartment7 t#ereceivable is fullyprovided for%

!#e &rite(off of t#ereceivable occurs ent#e collection agency :legal department cannot



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once proper approval hasbeen received enter theaccount in the on-linereferral to either Dun Bradstreet and;or )reditelas indicated in the (rite-offform. A copy of the referralform must be filed (ith thecustomerOs file

for(ard copies of allpertinent details1 includin$statement of account1copies of bill=s>1correspondence etc. to thecollection a$ency to (hichthe account (as referred

process a credit entry in theAR &ystem to remove thebalance outstandin$ (hichmust be e*ual to the amount(ritten-off

process a journal entry in8 &ystem creditin$account R;

annotate the file as havin$been referred to a collectiona$ency and file in thecollection a$encies section

diary account for follo(-uprevie(

TaF Procedures:

The )ompany is entitled todeduct from the 8.&.T.payable1 3;!#3th of theamount (ritten-off in respectto taFable supplies on (hich

taF has been remitted. Theadjustment for bad debtsmust sho( up as part of theMadjustmentsN on the 8.&.T.return and should beincluded in the reportin$period in (hich the bad debtis (ritten-off.

addressed the file ispassed to the a$ency

%e monitor results

Process item based onresults of a$encyOsefforts

Pay out fees for theservice as re*uired.

The item remains inA;R for the duration butis classified as Mtype "Nonce $iven to thea$ency or le$al.

collect and it is decidedt#at t#e receivable &illnot be sent for furt#ercollection routines% -t isat t#is time t#at t#e >"!is recoverable%

ariety of situations resultfrom third party collectionhandlin$1 but fees areincurred almost al(ays.

Accountin$ treatmentdiffers dependin$ on result.ees are handledseparately and char$ed toan R9.



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Amounts subse*uentlyrecovered from accountspreviously (ritten-off =or(ritten-do(n> should becredited to the allo(ance fordoubtful account. Also(here a bad debt previously(ritten-off is recovered13;!#3thof the amountrecovered must be added tothe 8.&.T. payable.

To (rite-off accounts=Hncollectible>

Dr. Allo(ance for Doubtfulaccounts R#7A)0

Dr. 8&T PayableR!!)0

)r. Accounts Receivable);R#3DA0

Ban2ruptcies A debtor =either anindividual or firm> facesban2ruptcy1 (hen it isfinancially insolvent 1 i.e. ithas liabilities in eFcess ofC!1### and is unable tomeet its debt obli$ation asthey come due. An insolventdebtor may MvoluntarilyN filefor ban2ruptcy by ma2in$ anassignment1 or itscreditor=s> may force theinsolvent debtor intoban2ruptcy by petitionthrou$h the courts for aMreceivingN order.

An alternative to ban2ruptcyis (hen an insolvent debtorma2es a proposal =orproposal for arran$ement>.This allo(s the debtor to

eFtend time for repaymentof some or all of the debt.

%hen one of the abovementioned situations occurs1a Trustee is assi$ned to thecase. The Trustee has theability to sei+e1 foreclose1 orrepossess the secured

Collection "pecialistobtainsdocumentation toconfirm ban?ruptcystatus

$eneral advice is sentto other departmentsand a complete picture

of (hat is )P and (hatis o(ed to thecustomer is finali+ed

if available1 set off isconsidered

a proof of claim is filed(ith the trustee unlessamount o(in$ is GC##.

if G C1### (rite-offimmediately =unlessproposal is fileda(ait

results1 then decide>

if C1### G C!#1###revie( circumstancesof each case anddecide (hether to (rite-off

if C!#1### (rite-off

-f t#e customer isban?rupt and #as notfiled under governmentprotection7 t#e situation&ill need to be assessedto determine if credits#ould be cancelled% -not#er &ords t#e decisionto cancel or maintaincredit is dependent ont#e insolvency protectionsoug#t and obtainedt#roug# CO@!R andCO@!R la&s% *ore4ample7 CCAA status isgenerally accompaniedby a court order forcingconditions7 includingcredit7 upon suppliers%

If the customer has made aproposal that has been

accepted1 the balance ofthe receivable is not(ritten-off. Basically thecustomer has as2ed foreFtended payment terms1and hence should continueto be traced based on thene( payment terms andpredetermined payment

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assets for disposition andoften operates the insolventdebtor business.

'iling rocedures

All ban2ruptcies overC##.## are handled by theRevenue Accountin$Department in ontreal. orinsolvent debtors (ithbalances less than C##.##1please submit for (rite-off=see (rite-off procedures>.%hen you are faced (ith theabove mentioned situationdurin$ the collectionprocess1 you must:

'btain the name andaddress of the Trusteehandlin$ the ban2ruptcyincludin$ the list of securedand unsecured creditors

6nsure that )I69T)ompany is listed amon$the creditors

)ontact the &upervisor)redit in the Revenue

Accountin$ Department toensure they have a recordof the ban2ruptcy in*uestion. If they have norecord obtain MallN pertinentdocumentation from theTrustee and for(ard to the&upervisor )redit

or(ard to the &upervisor)redit1 a statement ofaccount 1 listin$ all bill=s>outstandin$ includin$ bill=s>(hich may have beenpreviously (ritten-off1

ensurin$ the statement is inbalance (ith our records1and it includes copies of allthe bill=s> in *uestion

The &upervisor credit (illconfirm via erlin that theyhave ta2en over thecollection of the outstandin$

only (hen case closedor payout is disclosed

monitor files as

re*uired dependin$ oncircumstances andchances of recovery.

Accounting

)R appropriate a$entssuspense1 etc

DR appropriate baddebt eFpense

DR appropriatedeferred acctscollectible

)R appropriateban2ruptcy provision

Recovery of taFes=8&T1 P&T1 ?&T> ista2en only (hen noprovision is establishedor (hen the provisionta2en is reduced to

+ero.

%hen policy indicatesitem should beremoved from deferredaccounts collectible )Rthat account and DRban2ruptcy provision asre*uired

amount =if 2no(n>. &eethe tracin$ ; dunnin$process.

The action ta2en isdependent on thecircumstances of eachcase. %hen frei$ht isinvolved (e are almostal(ays an unsecuredcreditor and eFpectationsfor monetary recovery arevery lo(. ?andlin$ shouldreflect the level of returneFpected. If total o(in$ is GC## no claim is filed and

(rite-off ta2es placeimmediately (ithoutreserve bein$ established.

If amount C## a claim isfiled. urther handlin$ isdetermined bycircumstances. If filin$relates to the eFpectedrehabilitation of thecustomer =proposals orintent to file a proposal in)da and )hapter !! filin$in )'H9TR> then handleas a lon$ term paymenta$reement. Also1 suchfilin$s may $enerate apossibility for the sale ofthe receivables to acompany (hich speculatesas to the value of theeventual payout. 'ffersfrom such companiesshould be considered. Inall other situations=)hapter 3 filin$1 etc> (rite-off (ithout reserve bein$

established.

9'T6: BoF on maps onpa$es !3 !5 (hich readMis )I69T a securedcreditorN donOt describe theri$ht condition. The more

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'nce confirmation isreceived from the&upervisor )redit1 they (illperform the follo(in$outstandin$ and reconcile8 to A;R. Please ensurethat the (ord MBan2ruptcyNis entered in the descriptionfield of each credit youprocess in A;R.

correct *uestion is M%ill)I69T have a hi$hprobability of recovery.NThis occurs (hen (e are asecured or preferredcreditor or (hen as anunsecured creditor1 aproposal 1 intent to file aproposal or a )hapter !!filin$ occurs.



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$% "uppliers7 -nputs7 Outputs and Customers

This chapter outlines the process ; process variantOs supplier ; customer and inputs ; outputs.

"upplier -nputs Outputs Customers

$%9 Reuirements

This chapter lists all user re*uirement specifications that (ill be met throu$h the desi$n and construction ofthis process ; process variant.

Proect -D !itle Category Release >eo0s1 Application "tatus

&elect alue

&elect alue

!itle3

Description3

Dependencies3

!ec#nicalRevie&3

!itle3

Description3

Dependencies3

!ec#nicalRevie&3



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$%E Ris?s and Opportunities

This chapter outlines all ris2s that could disrupt the projectOs ability to deliver this process ; process variantand all opportunities that mi$ht result from its construction.

Date Created Ris? !ype Opportunities

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'% Organizational C#ange

This chapter identifies anticipated chan$es to the or$ani+ation and related benefit resultin$ from the

implementation of this process ; process variant.

'%$ Organization C#ange -mpacts

Proect-D

!itle "tatus !ype ProgramAccountability

BusinessAccountability

RelatedB.

&elect alue

&elect alue

!itle3

Description3

!itle3

Description3



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'%' Business Benefits

Proect-D

!itle "tatus !ype Occurrence Category Range Probability

&elect alue &elect alue &elect alue &elect alue

&electalue

&elect alue

&elect alue &elect alue &elect alue &elect alue

&electalue

&elect alue

!itle3

Description3

Fey Capability3

ProbabilityDescription3

FeyDependencies3

!itle3

Description3

Fey Capability3

ProbabilityDescription3

FeyDependencies3

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'%) Business Realization

RelatedB.

VA,@.,o&

VA,@.Gig#

BA".,-.Value

BA".,-."ource

B.CGMARFClient

B.CGMARF.4ternal

!itle3

CalculationRationale3

Fey ValueAssumptions3

!itle3

CalculationRationale3

Fey ValueAssumptions3



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'% Fey Performance -ndicators

RelatedB.

!itle Baseline !arget !olerance BusinessO&ner

!itle3

Description3

Assumptions3

*ormula3

!itle3

Description3

Assumptions3

*ormula3

'%9 .nablers

RelatedB.

RelatedOC-

!itle !ype Description

PeopleProcessTechnolo$y

People

ProcessTechnolo$y



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)% Design

This chapter identified early desi$n decisions made to support this process ; process variant1 anticipated

inte$ration points (ith other processes ; functional areas and anticipated Application 8APs ; Data &tandards ;Re$ulation and )ontrol 'bjectives that (ill have to be addressed in the Reali+ation Phase..

)%$ Fey Design Decisions

Decisions

In &AP (hen recordin$ %rite;offs the Posting Wit# Clearing !ransaction 0*();1 (ill be used. The follo(in$fields (ill be populated:

Document !ype3S5 %rite;off

Ref% Document3Internal Document file number

Geader !e4t3%rite;off Type1 e.$. BAD D6BT&1 &6TT669T1 BA94RHPT)1 etc.

Posting Fey3!!

>, Account3!7##

!a4 Code3ust be the appropriate taF code to recapture the taF included in the invoice=s> bein$ (ritten off.6Fample if 8&T is to be recovered1 i.e it (as included in the invoice bein$ (ritten-off taF code &D (ould beused.

!a4 Hurisdiction3The correspondin$ taF jurisdiction of the invoice=s> bein$ (ritten-off

!e4t3The reason for the (rite-off and;or any appropriate remar2s

Allocation3The &APOs )ustomer aster 9umber

Description

This section of the BDD is divided into " subsections:

Bad Debt 6Fpenses Definition;)urrent Process 9on-rei$ht

Business Desi$n - &pecific Bad Debts

Business Desi$n - 8eneral Provision

Business Desi$n - %rite 'ffs

)urrent Processes

Proposed 9e( &tandardi+ed Processes



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$% Bad Debts .4penses 0on(*reig#t1

Definition 0Bad Debt ,osses1

Bad debt losses are basically the credit losses that the )ompany incurs (hen customer cannot pay their

debts. &uch losses1 as distin$uished from amounts (hich are uncollectible because of dama$e to $oods orfailure to meet a specified *uality or standard1 are Mbad debt lossesN. Therefore1 bad debt losses are aneFpense of sellin$ on credit. And if revenues and eFpenses are matched1 bad debt losses must be matcheda$ainst sales.

Bad debt losses are $rouped as follo(s:

Bad Debt Accounts =Hncollectible;Ban2ruptcies>

Reduced &ettlements

'utstandin$ %aived for Business Reasons

Allo&ance Met#od of Accounting for Bad Debts

The char$e to Income for doubtful accounts is derived by applyin$ a fiFed percenta$e1 calculated in li$ht ofbad debt eFperience of correspondin$ prior periods1 to the sales for the period.

The resultin$ allo(ance (ill be revie(ed from time to time by the Assistant ana$er and;or the &enior)ollection )ler2 to ensure that it is not materially more or less than the amount (hich (ould be re*uired onthe basis of providin$ for the probable loss on accounts outstandin$ at the balance sheet date. Adjustmentsto this allo(ance must be made at the end of the accountin$ period.

Hnder this method the follo(in$ procedures must be adhered to:

as soon as it is 2no(n that an account is uncollectible it should be (ritten off or (ritten do(n toits estimated reali+able value. To do so prepare the (rite-off form =see appendiF > andeFplanation and submit alon$ (ith complete file to the &enior )ollection )ler2 =this eFcludesaccounts (hich are to be referred to the a( department for collection1 see Referral to a(

Department procedures>.

the &enior )ollection )ler2 (ill revie( the file and either approve for (rite-off and;or (rite do(n toC!.## and ma2e recommendations on the (rite-off form and pass on to the Assistant ana$erfor his;her approval. If not acceptable the &enior )ollection )ler2 (ill return the file to the)oordinators for further handlin$.

the Assistant ana$er (ill ma2e recommendations and approve and pass on to the ana$erand;or return the file for further handlin$.

Referral to a Collection Agency

%hen all alternatives of collections have been eFhausted and there are no circumstances surroundin$ the

account (hich (ould ma2e the referral to a )ollection A$ency detrimental1 e.$. sensitive customers1 the)ollection )oordinator=s> must:

submit the account for (rite-off approval usin$ the (rite-off form =see appendiF > to the &enior)ollection )oordinator for proper approval and;or other approvals =see Authority for (rite-offs>

once proper approval has been received enter the account in the on-line referral to either Dun Bradstreet and;or )reditel as indicated in the (rite-off form. A copy of the referral form must befiled (ith the customerOs file

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for(ard copies of all pertinent details1 includin$ statement of account1 copies of bill=s>1correspondence etc. to the collection a$ency to (hich the account (as referred

process a credit entry in the AR &ystem to remove the balance outstandin$ (hich must be e*ualto the amount (ritten-off

process a journal entry in 8 &ystem creditin$ account R;

annotate the file as havin$ been referred to a collection a$ency and file in the collection a$enciessection

diary account for follo(-up revie(

!a4 Procedures3

The )ompany is entitled to deduct from the 8.&.T. payable1 3;!#3th of the amount (ritten-off in respect totaFable supplies on (hich taF has been remitted. The adjustment for bad debts must sho( up as part of theMadjustmentsN on the 8.&.T. return and should be included in the reportin$ period in (hich the bad debt is

(ritten-off.Amounts subse*uently recovered from accounts previously (ritten-off =or (ritten-do(n> should be credited tothe allo(ance for doubtful account. Also (here a bad debt previously (ritten-off is recovered1 3;!#3thof theamount recovered must be added to the 8.&.T. payable.

The business desi$ns arise out of the standardi+ed processes.

'% Business Design ( "pecific Bad Debts

A receivable is sent to the collection a$ency or le$al department (hen the collection specialists haveeFhausted their means of collection throu$h the tracin$ process. Based on past eFperience1 (hen areceivable is sent to the collection a$ency1 it is unli2ely that the money (ill be collected. &ince it can bereasonably estimated that the receivable is uncollectible1 the receivable should be fully provided for or (rittenoff.

If the receivable is (ritten off =ie: removed from the accountin$ boo2s>1 there is no (ay to monitor thosereceivable sent to the collection a$ency or le$al department. By fully providin$ for receivables sent to thecollection a$ency or le$al department1 the receivable is reduced to a nil net reali+able value (hile stillallo(in$ )I69TOs collection specialists the ability to report on those receivables sent to outside sources.

Decision: When the receivable is transferred to the collection agenc or legal de!art"ent# record a bad debt!rovision for 100$ of the receivable.

The UAllo(ance for Doubtful AccountsO account can ta2e t(o forms. The first form is that this account can bea $eneral led$er account1 (here an entry needs to be made to record the doubtful receivable. %ith thisalternative1 reference needs to be made to the customer account and the receivable. To analysis this accountfor (hat customer;invoices comprise this account1 data (ill need to be manipulated. The second alternativefor the UAllo(ance for Doubtful AccountsO account is ma2e this account a reconciliation account that contrasthe )urrent Receivable account. Hsin$ special 8 indicators1 the allo(ance can be sho(n on the customeraccount as (ell as reflected in a separate 8 account for financial reportin$ purposes. This alternative

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enables the collection specialists to have a complete vie( of the customer account =ie: current receivables1deferred receivables1 and provisions made for this customer>.

Decision: %o !rovide a co"!lete vie& of the custo"er account# an !rovisions "ade s!ecificall to thecusto"er account &ill sho&n on the account. %he originating invoice &ill then be on the sa"e screen andcan be easil accessed.

The provision can be recorded manually or automated. &ince all receivables sent to the collection a$ency orle$al department are deemed to be uncollectible1 the dunnin$ bloc2 field (ill be populated manually by thecollection specialist (ith the value indicatin$ that the receivable is sent to a third party. This dunnin$ bloc2field can be used to tri$$er the automatic recordin$ of the provision via an ABAP pro$ram that (ill run on ani$htly batch.

8&T is recoverable at the time (hen the receivable is (ritten-off1 and should not be pursued if a provisionhas been created for the receivable. 'nly (hen no provision eFists should taFes =8&T1 P&T1 ?&T1 etc> berecovered.

Decision: %o reduce the nu"ber of "anual entries to record the s!ecific !rovision# an ABA' &ill be &ritten to!erfor" the entries. ()% &ill be recoverable at the ti"e of &rite*off.

)% Business Design ( >eneral Bad Debts

A $eneral provision for doubtful accounts is calculated by applyin$ a percenta$e based on past eFperience tothe all receivables To be completed (ith calculation.

9'T6: rom a frei$ht perspective (e have not been informed of any decision ; a$reement (hich (ould alterthe current method of establishin$ a $eneral provision.

% Business Design ( Write Offs

Receivables (ill be (ritten off (hen the receivable is not collected by the collection a$ency or le$aldepartment or (hen it is determined that the customer is ban2rupt and the prospects for recovery areessentially nil.

The (rite-off (ill be processed by a $roup (hich is separate from the individuals (ho have authority to (rite-off in order to provide control and security to the transactions. There are t(o (ays to (rite off the receivable:manual entry and clearin$ or automatic clearin$

>eneral ote)urrent frei$ht treatment involves separate accounts for each of the entities associated (ith )I69T. 9othin$in this document su$$ests this (ill chan$e1 ho(ever1 it (as our understandin$ entity receivables (ould in thefuture be purchased so all (ould be under the )I69T entity name.



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)%' -ntegration Considerations



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)%) Application >APs

Proect-D

!itle *-! >AP Approac# Application R-C.*Priority

R-C.*Comple4ity

&tandard )onfi$urationProcedural %or2-AroundReportInterface)onversion6nhancementorm%or2flo(Portal&'A )omposite Application

&elect alue &elect alue

&tandard )onfi$urationProcedural %or2-AroundReportInterface)onversion6nhancementorm%or2flo(Portal&'A )omposite Application

&elect alue &elect alue

!itle3

Description3

ResolutionRationale3

BusinessOrganization-mpact3

!itle3

Description3

ResolutionRationale3

BusinessOrganization-mpact3

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)% Data "tandards eeds

Proect-D

Data ame .4isting-ndicator

"tandards "ecurity Considerations

)%9 Regulations and Control Obectives

Proect-D

Regulation -D Regulation ame Control Obectives



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% !esting

%$ "cenariosThis chapter identifies any process scenarios that mi$ht be used to test this process ; process variant foraccuracy.

Proect-D

!itle Description

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9% !raining

9%$ Business Process ProceduresThis chapter identifies all business process procedures (hich support this process ; process variant.

Proect-D

!itle Description

pdd accounting for bad debts and writeoffs (bdar2160)

Documents