Results 1 to 3 of 3

Thread: Bad Debts

  1. #1
    New Member
    Join Date
    Jan 2016
    Location
    Jeffreys Bay
    Posts
    4
    Thanks
    2
    Thanked 0 Times in 0 Posts

    Bad Debts

    Hi, I would like to know more about bad debts and income tax. We have a client who owes us money, my accountant says that if we create a Provision for Bad Debts in the balance sheet SARS will only allow us 25% as a tax deduction. There is a court case pending and this could take another year for all we know, can I write off this debt in our books or will this create a problem for the future court case? I have also asked the question to our attorney, but they can't answer me right away as they are not familiar with tax law.

    Obviously we can't and don't want to pay tax on this amount. I have already paid the VAT on the invoice and would also like to claim that amount back as it is detrimental to our cash flow. Any advice please? Thank you.

  2. #2
    Diamond Member Justloadit's Avatar
    Join Date
    Nov 2010
    Location
    Johannesburg
    Posts
    2,671
    Thanks
    88
    Thanked 544 Times in 460 Posts
    Blog Entries
    1
    I stand to be corrected, but you can write off a bad debt. The fact that it is going to court does not mean that you will be paid.
    On the VAT form there used to be, I have not seen one now for many years, a provision for bad debts, and also bad debts recovered.

    I am not sure of the exact procedure, but a credit entry including VAT to the value of the bad is created, and off set to the outstanding amount. This clears the account as far as the balance sheet is concerned, the VAT is then entered under the Bad debt VAT column as a credit.

    If the debt is paid in the future, then a new invoice is created including VAT to the amount received against the bad debt entry on the balance sheet, and the VAT of this recovered debt is then entered onto the VAT form under bad debt recovered.

    Please note that this is what I have done years ago when I was faced with this dilemma. It is best cleared up with your auditor on the exact procedure.
    Victor - Knowledge is a blessing or a curse, your current circumstances make you decide!
    Solar and LED lighting solutions - www.microsolve.co.za

  3. Thanks given for this post:

    sherenerowe (18-Feb-16)

  4. #3
    New Member
    Join Date
    Jan 2016
    Location
    Jeffreys Bay
    Posts
    4
    Thanks
    2
    Thanked 0 Times in 0 Posts
    Thank you, that makes perfect sense. I will consult my other auditor as well on the exact procedure.

    Have a lovely afternoon.

Similar Threads

  1. [Question] Pastel XPress V11 - Bad Debts
    By molaher in forum Accounting Forum
    Replies: 1
    Last Post: 15-Aug-13, 02:40 PM
  2. [Question] Ledger accounting for bad debts
    By dcs in forum Accounting Forum
    Replies: 8
    Last Post: 02-Aug-13, 07:13 AM
  3. [Question] Handling Prescribed Debts
    By mudyguts in forum National Credit Act Forum
    Replies: 0
    Last Post: 12-Jun-13, 09:43 PM
  4. [Question] Recovering Bad Debts.
    By Arogon in forum General Business Forum
    Replies: 6
    Last Post: 13-Feb-11, 08:26 AM

Did you like this article? Share it with your favourite social network.

Did you like this article? Share it with your favourite social network.

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •