To increase any provision for bad debts, a provision for bad debts must already exist. This provision may have been created at the end of the first year of your business existence or when you have implemented such accounting policy. At the end of the following year, you need to revise or calculate the provision for bad debts or provision for doubtful debts based on the figures of your good book debts. This is necessary to ensure that the provisions calculated are in line with any fluctuations in your credit sales and outstanding debts, and changes in credit control.

Before you may estimate or calculate the provision for bad debts, you need to identify the irrecoverable debts, which you need to write-off as bad debts. If the amount for the provision is higher than that of the previous year; you need to increase the provision for bad debts or doubtful debts. You may wish to calculate the amount for the provisions on the following methods:

1. Estimates or calculations based on the age analysis schedules of your debtor accounts.
   
   

2. Estimates or calculations based on the total outstanding debt.
   
   

3. Estimates or calculations based on the total sales on credit.

To Increase Provision for Bad Debts:
Click on the speed button or icon. You may also press the key on your keyboard. Alternatively you may press the and and keys on your keyboard. The Batch Type screen will be displayed.
Select the General Journal from the list displaying the available Batch Types and click on the button. The Batch Entry screen for the General Journal will be displayed.
 If no contra account or if any other account than the Bad Debts (Expense Account) is displayed on the Batch Type selection screen, you need to set the options for the batch. If you have not yet set the General Journal batch up, or if your requirements should change, click on the speed button or icon. Note that for the Provision for Bad Debt transactions, the Amount Entry field should be set to allow both.
 There are 2 ways in which the increase in bad debts may be recorded, i.e.:

1. Reverse the transaction for the provision created in the previous financial year or the balance of the provision for doubtful debts account (e.g. R(£) 800) and enter the full amount for the new calculated provision (e.g. R(£) 1 000).
   
   
2. Enter the increase in the provision of bad debts (the amount of the previous year - less calculated amount), e.g. R(£) 1 000 less recorded for the R(£) 800 previous financial year. In this case only R(£) 200 would be entered in the journal.

Enter the Reference number you allocate to the Provision for Bad Debt transaction, date, description, select the Bad Debt expense account, select the No Tax code and enter the amount in the debit column. For the second line, select the Provision for Bad Debts account and enter the amount in the credit column.

After entering the transactions in the General Journal, the transactions will be displayed as follows:



This transaction should be exactly the same than the transactions when you have created provision for bad debts or increased the provision for bad debts.

It is not necessary to balance the batch, since the debit and credit transactions you have entered should already be in balance.
 Click on the speed button or icon or press the key on your keyboard to change the alias. This will help you if you wish to identify a specific batch, if you wish to generate a batch type report or if you wish to export posted batches to a file.
Click on the speed button or icon or press the key on your keyboard to list the batch. It is a good idea to list the batch and check the entries on the batch thoroughly. If there are any errors, you may edit the batch before posting the batch.
Click on the speed button or icon or press the key on your keyboard to post the batch. TurboCASH will post the entries to debit the amount of the increase to the bad debts expense account and credit the provision for bad debts account. The posted transactions will be displayed as follows in the general ledger accounts:


This transaction will increase the balance of the provision for bad debts

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In larger concerns, the provision for bad debts or doubtful debts may be done on a regular basis (e.g. monthly or a six monthly basis), while most businesses makes provision on a annual basis.

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The Tax legislation and practice notes issued by your Tax Authorities give guidelines to calculate or estimate any provisions. If you use any method to calculate the provision, you need to be consistent with the method in the previous and consecutive years.

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Before you wish to post the batch, please ensure that you have checked the transactions and that you have changed the alias, print a list of the entries in the batch.