Perform Value Adjustments for Overdue Receivables
Value adjustment of overdue receivables is a period-end closing activity that recognises expected credit losses on customer open items without clearing them. The logic is driven by an aging grid: time buckets measured from the due date (for example 1–30, 31–60, 61–90, more than 90 days), each with an adjustment percentage. The program selects open items by key date, assigns each to a bucket, applies the percentage and posts the resulting allowance.
Customizing defines the adjustment accounts per reconciliation account – typically one expense account (bad debt expense) and one balance-sheet allowance account (contra to receivables) – plus the aging grid and percentages. The posting is debit expense / credit allowance; the customer reconciliation account and the open item remain unchanged.
Traps to expect
- The postings are computed as target allowance minus existing allowance; running the program twice in one period without reversing the first adjustment can double the allowance.
- A simulation run produces a log only – nothing is posted.
- The key date drives which items are considered and how many days overdue they are; a later key date can move items into higher buckets.
- Items not yet due, or in the first bucket with 0 %, produce no adjustment.
- Adjusted items are still open, still dunned and still appear in the aging report; the allowance is a valuation layer, not a clearing.
Worked example: a 10,000 receivable is 45 days overdue. Grid: 1–30 days 0 %, 31–60 days 5 %, 61–90 days 20 %, >90 days 50 %. Adjustment = 10,000 × 5 % = 500. Debit bad debt expense 500, credit allowance for doubtful accounts 500. When the item reaches 75 days, the target is 2,000, so only the delta is posted if the prior allowance still exists.