- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
Bad Debt Expense Question
Posted on 10/18/13 at 6:42 am
Posted on 10/18/13 at 6:42 am
I'm in a partnership/franchise and I take home 60% of net profit at the end of each month. My partner holds our line of credit and pays all of the bills through the parent company he founded.
We pay 1.5% to bad debt on the P&L each month--I've been open since February and have paid in $60,000.00 to bad debt. I have zero accounts over 90 days as far as collections go and I usually am at around $500,000.00 a month in receivables.
At one point do you stop contributing to bad debt? This is becoming a sticky point between us as I said before, he controls the money because it's his line of credit.
What have some of you done in the past when it comes to bad debt expense/accounts?
We pay 1.5% to bad debt on the P&L each month--I've been open since February and have paid in $60,000.00 to bad debt. I have zero accounts over 90 days as far as collections go and I usually am at around $500,000.00 a month in receivables.
At one point do you stop contributing to bad debt? This is becoming a sticky point between us as I said before, he controls the money because it's his line of credit.
What have some of you done in the past when it comes to bad debt expense/accounts?
4
Posted on 10/18/13 at 8:08 am to JoseVargasTX
Once you have a historical basis off which to base your bad debt reserve I would make the case to your partner to agree to lower the reserve %. Also, if your actual bad debt is lower than your reserve you will still pay taxes on the extra amount you reserved, as income tax is paid on a cash basis.
Posted on 10/18/13 at 8:31 am to JoseVargasTX
If there hasn't been any collection issues, I don't see the point of arbitrarily recording bad debt expense every month. Depending on what type of industry this is in, I would think of maintaining the allowance for doubtful accounts at some nominal level (maybe $10,000 - about 2% of receivables). Analyze receivables each month for any that are getting old and consider increasing the allowance for the late accounts (20% over 90 days, 50% over 180 days, etc.). His way is certainly easier and likely more conservative, but it seems like lazy accounting.
Like the previous poster said, the tax deduction is based on actual charge-offs, not the bad debt expense, so if that is his reasoning, it's a flawed one.
Like the previous poster said, the tax deduction is based on actual charge-offs, not the bad debt expense, so if that is his reasoning, it's a flawed one.
Posted on 10/18/13 at 8:49 am to JoseVargasTX
Do u trust your partner? Need transparency.
Although I prolly shouldn't give advice because ages ago I had incentivized our collectors to reward them more for collecting the oldest debts, and therefore the hardest to collect.
Until we discovered they were allowing some accounts to age.
Although I prolly shouldn't give advice because ages ago I had incentivized our collectors to reward them more for collecting the oldest debts, and therefore the hardest to collect.
Until we discovered they were allowing some accounts to age.
Posted on 10/19/13 at 1:22 pm to JoseVargasTX
You could switch to a percentage of receivables method. So every year you might take 5% of receivables and that is what your bad debt account should be. If it is already higher than that then you adjust it downward and vice versa.
Page 1 of 1
Back to top
Follow TigerDroppings for LSU Football News