Modelling Bad Debt Write Offs

There are 2 main ways of modelling bad debts write offs arising from sales in Castaway:

  • direct write off via a Sales element
  • indirect write off via a Provision element

Direct write-off via a Sales element

This method adds a Bad Debt expense to the Profit & Loss and reduces the value of debtors in the Balance Sheet. Taxable income is reduced by the bad debt expense and any liability for GST/VAT is also reduced. 

To write bad debts off directly:

  • go to the Data Entry work area of the Sales element
  • under Cashflow, select a Bad Debt Write Off Method:
    • Enter Bad Debts
    • % of Monthly Invoices

 

  • Enter bad debts data into the data entry row that appears

 

 

Indirect write off via a Provision element

This method achieves a bad debt write off in 2 steps:

  1. Provision: a Provision for Doubtful Debts is created in the Balance Sheet and a Provision expense is added to the Profit & Loss
  2. Write off: the write off is recorded by reducing both the Debtors value and the Provision value in the Balance Sheet, with no impact on the Profit & Loss

To write off bad debts indirectly:

  1. Add a Provision element under Current (or Non-current) Liabilities in the Castaway Chart of Accounts
  2. Go to the Data Entry work area of the Provision element
  3. Under Account Type, set the Account Type to General Doubtful Debts
  4. Under New Provision, set the Provision Movement Option
  5. Under Write Off, select a Write Off Method

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