Understanding Bad Debts

When an Accounts Receivable (A/R) trade account becomes a solvency risk (for example, legal rectification), the A/R trade account is recognized as a Doubtful A/R trade account, regardless of the invoice due date. You create an entry in a Doubtful A/R trade account every time that a posted invoice, or several invoices, represents a risk.

In the French chart of accounts, a special account exists in class 4 as a subset of account 411000 - Trade Accounts Receivable, and is used for doubtful clients and client accounts in litigation.

When you recognize a client account as a bad debt, you transfer the receivable amount, including any value-added tax (VAT), to account 416000 - Bad Debts. You also create the necessary accounting entries between account 416000 - Bad Debts and account 411000 - Trade Accounts Receivable. In addition, you must create the necessary accounting entry in account 491000 - Provision for Doubtful Trade Account.