Individual Value Adjustment
Using a special G/L transaction, you can post an individual value adjustment for doubtful receivables. In doing so, you post the doubtful receivable to the customer account and to an expense account.
Using a special G/L transaction has the following advantages:
- The receivable remains on the customer account and on the receivables account. You manage the individual value adjustment separately from the receivables themselves on the customer account. This means that you can identify the individual value adjustments posted to any customer account whenever you like.
- In the general ledger, the doubtful receivable is also posted to a separate reconciliation account. You do not have to transfer the doubtful receivable when creating the financial statements.
The following example describes how you use the special general ledger transaction to post doubtful receivables. For more information on special general ledger transactions, see the FI Accounts Receivable and Accounts Payable documentation.
You have posted receivables of $8000. The sales tax portion is $1043.48. You want to display this as a doubtful receivable at the balance sheet key date. In this example, we will assume that both doubtful and uncollectable receivables are to be displayed in the same account.
You need to make the following postings when creating individual value adjustments and when writing off doubtful receivables:
- You post the individual value adjustment of $6956.52 (the value of the doubtful receivable) to the relevant expenses account for valuation adjustments, and make the offsetting entry on the customer account. The system automatically posts the same amount to the special G/L account for individual value adjustments. When making this posting, you should use a tax code which represents a tax rate of zero percent.
- If you decide to write off the receivables, or if they are paid, you can reverse the individual value adjustment.
- If the receivables are uncollectable, post the amount to the receivables write-off account and clear the receivable on the customer account. For this posting, you should use a tax code which has the same tax rate as the one used when you posted the receivable. This means that the sales tax is automatically adjusted.
To be able to post individual value adjustments as a special G/L transaction, you must fulfill the following conditions:
is defined in the standard system. If you want to define your own special G/L indicator, select the activity
Define alternative reconciliation account for customers and Define alternative reconciliation account for vendors under Other special G/L transactions in the Accounts Receivable and Accounts Payable Implementation Guide.
To be able to post the individual value adjustment to an alternative reconciliation account, you must first create this account and the account number in the system. To define the account number, select the activities Define alternative reconciliation account for customers and Define alternative reconciliation account for vendors under Other special G/L transactions in the Accounts Receivable and Accounts Payable Implementation Guide.
- The transaction must have the special G/L indicator. You enter the indicator when posting the individual value adjustment. Using this indicator, the system determines the alternative reconciliation account. The special G/L indicator
You will also need an account to which you can post the expenses from the individual value adjustment. This account must be tax-relevant if you want to post the expense and revenue for the individual value adjustment as well as sales tax to this account.