SOP For Allowance For Doubtful Accounts

SOP Number: Finance and Accounting – 21

Department: Accounts Receivable

Date Issued: 8-Aug-2021

Time to Train: 25 Minutes

Purpose of  Allowance For Doubtful Accounts :

It is the direct responsibility of the Controller to ensure that an adequate. Allowance for Doubtful Accounts exists and that all write-offs follow the approval process outlined below.

 Allowance For Doubtful Accounts SOP Procedures:

ALLOWANCE FOR DOUBTFUL ACCOUNTS

A reserve will be maintained to cover the subsequent write-off of accounts receivable. This should be equal to 3% or non-credit card accounts receivable.

A monthly entry will be made to debit the Bad Debt expense in the A&G Department and credit the Allowance for Doubtful Accounts. This amount may be based on an annualised amount.

WRITE-OFFS

There will be, from time to time, accounts receivable accounts which will be deemed uncollectible. These accounts will be charged to the Allowance for Doubtful Accounts or to the departmental bad debt expense.

A. If all hotel credit procedures and company policies have been followed and the account is deemed uncollectible, the account should be written off to the Allowance for Doubtful Accounts.

In the event that your write-off reduces the Reserve for Bad Debts to less than 3% of non-credit card receivables. an adjustment needs to be made. to the Reserve accordingly.

B. If an account is transferred to City Ledger and is not billable, the Accounts Receivable Supervisor will make every effort possible to obtain a billing address. In a case where it becomes impossible to bill the account, it will be written off and charged to the bad debt expense of the department which was responsible. Examples of this would include walkouts, non- readable credit card imprints. CIA's, etc.

Also, if a policy is violated and the account is billed but not collected, the account will be written off and charged to the bad debt expense of the responsible department.

C. Accounts Receivable write-offs should be documented as to reason, including comments of appropriate department. All write-offs and adjustments, including credit card rebates, must be approved by the department head. Controller, and General Manager.

D. Accounts are to be written off when they are determined to be uncollectible, but in no case are they to be retained on the books beyond 180 days.

Unidentified credit balances in the 180 day age category are to be written off as a credit to Allowance for Doubtful Accounts.

Except for items previously written off to a departmental bad debt expense, all recovery of Bad Debt previously written off are to be credited to the Allowance for Doubtful Accounts. Recovery of items written off to a departmental expense should be credited to the expense where it was originally charged

Training Summary Questions:

Q1. What is the write-off policy for accounts receivable?

Q2. What happens if an account is transferred to City Ledger and is not billable?

Q3.Who should approved all write-offs and adjustments, including credit card rebates?

Q4. What is the criteria for writing off bad debt expenses??