How are the bad debts treated in sap and explain the configuration procedure?

By Srinath Kodanda

As I have come across that there is nothing specific configuration in SAP for Bad debts.  Let us understand the Bad debts conceptually.   There are two aspects we need to understand in treatment of Bad Debts. 

1)  Bad Debt Expenses: 

Any amount not received from customers treated as Bad debt.  We treat this as expenses and charged off in the P&L Account in the financial year  Also can claim IT Exemption from the Income tax Department. 

2)  Bad Debt Provision: 

We need to make Bad debt provision based on the Customer Agewise report from SAP.  You can generate the SAP Report of  <45 days, 45<>90, 90<>180, 180<>365 and greater then 365 days.   I would assume any customer account bills showing more than 365 days  I will make provision for Bad and Doubtful debts.
Also out of the >365 days amount if any Contractual retention's are there you can exclude from the provisions.  Also,  If you have sound reason that you will collect from the customer, you can take out from the provision.   This is more related to manual calculations of  Bad debt amounts. 

Also, you can keep contractual retention amounts in Special G/l Transaction as Retention's.

and 

If any advance received from the customer, you can deduct from the provision amount.

During the last working day we post an entry to Bad debt provision account and crediting to Sundry Debtor Account  and 1st day of next financial year we reverse the  entry.

You will not get Income Tax Exemption for this provision amount.

Therefore, in SAP you get only Agewise analysis for customer for analyzing the Bad Debt amount.

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