Unrealistic collection claims are written off favouring the bad debt reserve or the company’s financial result if the said reserve has not been formed. At a non-profit organization, delinquent accounts receivable are subject to write-offs to increase expense accounts.
Waiver of debtor insolvency claims does not mean that it is waived in this way. This debt is reflected in the five-year accounts so that if the debtor’s financial situation improves, it can be repaid.
Debtors are recognized as unrealistic for debt collection if the limitation period has expired and the obligations are no longer practical due to the impossibility of fulfilling them due to an act of the state authority in the event of the debtor’s death. Or the liquidation of the legal entity.
The write-off of overdue debtors is based on stock data, written accountability and orders from the management. Claims can also be written off based on an act of a government agency, for example, the bailiff or liquidation of the organization.
Receivables with overdue prescriptions and other unrealistic debt collection debts are debited to account for 63 “Balance for doubtful debtors” or 91 “Other income and expenditure”. At the same time, the accounts for posting settlements with debtors (60, 62, 76, etc.) are credited. If the company does not create a reserve account for doubtful debtors, the amount of depreciation is included in the non-operating costs. Remember that the reserve amount produced for bad debts should not exceed 10% of the organization’s income.