Allowance for Bad Debts    7001-01   ZZsch

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                            TO:  Interested Christian Schools                                                                                FROM: Jim Bramer, Retired CPA-Auditor
                                                                                                                                                                           FILE:  7001-01/sch

                            RE:  Allowance for Bad Debts                                                                                        Originated:  January 1989

            What follows is primarily for the benefit of the Christian School, but equally pertains to accounting for any type of Accounts Receivable asset.

            We recommend that you reflect for budget and reporting purposes the income as it is earned, or this billing process places the Ministry on the accrual basis of accounting.

            Further, that your accounting system provides the internal control feature that the individual amounts owed must agree with the Account Receivable Control account within your general ledger. Go to  7010  for certain helpful School Accounts Receivable information.

           Follow-up regularly and detect when people do NOT pay you when they promised.  Do this by regularly producing an  Aged Accounts Receivable list.  Go to 0743  for a sample.  At least monthly, determine aging totals.

            From this aged information you reduce the income, or you estimate a consistent percentage of these aged accounts you will probably NOT receive. This involves setting up an "Allowance for Bad Debts" account that appears as an Asset reduction account. This appears next to the Account Receivable asset in the Balance Sheet and reflects the approximate real Account Receivable asset.

            Of course, this also involves establishing an Estimated Bad Debt expense account, or our preference is to have an Income reduction account that appears next to Tuition Billed account in the Income area of the Actual to Budget, or Income Statement -- likewise, to reflect to net approximate earned income.

            If you would like to see samples of a School's financial reports, please go to  0749.

            We recommend that this be consistent throughout the year as you will likely choose to make these adjustments monthly.

      Please Click Here for a list of more Christian School resources on www.bcidot.org.  The bulk of this Publication originated in January 1989 and was.  UPTD: May 01, 2008  

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     (1) An Online Document, or  WRIT (Writing), may be applicable to all Ministries, or it may be designed for just groups like: Evangelical Church, School, Missionary Agency or Organization, Christian Camp / Conference, or other named group.
     (2) Our Writings formats include the perspective of   Jim@bcidot.org   via IOMs (Inter-Office Memos) to the Ministry Finance Team (MFTeam); THRDs, a hypothetical Online conversation with members of the MFTeam; GLEANINGS, or Scripture within context of the MFTeam; FWIW; A periodic editorial (For What it is Worth); TRUISM, or believed Ministry Finance principles; and via FAQ, response to Frequently Asked Questions