Usually, at the end of the first year of your business existence or when you have implemented such accounting policy, you need to create provision for bad debts or provision for doubtful debts.
- Before you may estimate or calculate the provision for bad debts, you need to identify the irrecoverable debts, which you need to write-off as bad debts.

You may wish to calculate the amount for the provisions on the following methods:

• Estimates or calculations based on the age analysis schedules of your debtor accounts.
• Estimates or calculations based on the total outstanding debt.
• Estimates or calculations based on the total sales on credit.
• In any consecutive years, you need to revise the amounts of any provisions made or created in the previous year. You may need to increase or decrease the amount of the provision.
  - If you use any method to calculate the provision, you need to be consistent with the method in the consecutive years.
  
  - This is necessary to ensure that the provisions calculated are in line with any fluctuations in your credit sales and outstanding debts. This provision will have an effect on your Income Statement (Profit or Loss).

To Create Provision for Bad Debts:

1. Click on the Batch Entry icon, or click on the Input→Batch Entry menu option.
   - Keyboard Access: Press the F2 key on your keyboard. Alternatively, press the Alt+I+B keys on your keyboard.
   The Batch Type Selection screen will be displayed.
2. Select the General Journal.
3. Click on the Open button. The Batch Entry Transaction screen for the General Journal is displayed:
   
   
4. Enter and/or select the following:
   1. Reference number - Enter the Reference number you allocate to the Provision Bad Debt transaction.
   2. Date - Enter or select the date for the transaction.
   3. Description - Enter a brief description for the transaction.
   4. Account - Select the applicable account to which you need to allocate the debit or the credit transaction.
   5. Tax Account - Select the No Tax code.
      - You may also select to hide the Tax column, and lookup facility in the Setup Options for the General Journal, if no VAT/GST/Sales Tax is applicable to all transactions in this batch, or if you are not registered as a VAT/GST/Sales Tax Vendor.
      
      
   6. Amount - Enter the amount of the transaction.
5. After entering the transactions in the General Journal, the transactions will be displayed as follows:
   
   - Since no Tax is applicable to these transactions, you may select to hide the tax column, Exclusive and Inclusive icons, as well as the lookup facility in the Setup Options for the General Journal, as in this example.
   
   - It is not necessary to balance the batch, since the debit and credit transactions should be of the same amount.
   
   
6. Click on the F9: Process icon, or press the F9 key on your keyboard, to change the alias (batch name).
   - This will help you if you wish to identify a specific batch to generate a batch type report, or if you wish to export posted batches to a file.
   
   
7. Click on the F8: List icon, or press the F8 key on your keyboard, to list the batch.
   - It is a good idea to list the batch, and check the entries on the batch thoroughly. If there are any errors, you may edit the batch, before posting the batch.
   
   
8. Click on the F6: Post icon, or press the F6 key on your keyboard, to post (update) the batch to the ledger.

After posting the transactions, the T-Account View of the transactions should reflect as follows:

The amount of provision for bad debts is debited to the Bad Debts expense account.
This will reduce your net profit.

The amount of provision for bad debts is credited to the Provision for Bad Debts account.
This will reduce the balance of the Debtors Control Account to display the good book debtors. This is a contra account to the Current Assets Financial Category.

- Debits - Expenses (Bad Debts) = Credits - Provision for Bad Debts (Contra Account for the Debtor’s Control Account)