Contra Revenue / Discounts and Bad Debt

Revenue Debtors
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Daniel ODonnell X 2
DO
Contra Revenue / Discounts and Bad Debt

Noobie here.  I'm exploring building a model that will involve presentation and analysis of Contra Revenue (expected discounting) booked against Gross Revenue as well as expected bad debt.  I don't see a chart of accounts that has these elements and the related accumulation of reserves against Accounts Receivable aka Short Term Debtors and / or the cash flow statement impact of backing off the Net A/R from the balance sheet.  Does anyone have a custom chart of accounts with these elements that they would be willing to share?

Thanks,

Dan O'Donnell

FTI Consulting

Jun Yan A+ 124

Hi Dan,

Interesting one. There's probably quite a few questions to ask to properly do this, and funnily enough this may lead into specific modules built around your other posts RE pinch points / bow ties.

I'm sure the guys will have a better way and probably best to jump on support credits for this as it can get complicated. Thinking of a super quick solution without a full understanding of requirements, you could try:

Take a generic chart of account > apply sub totals to revenue lines (I've used the Modano B&P example model CoA5). One thing I will point out before moving ahead, this is likely not good practice as I am creating negative revenues / wc where there generally shouldn't be any so I have alerts triggering for both of these.

With cell shading turned on, added subtotals and extra categories for the discounting.

Cell shading turned off so you can see a bit better.

For the reserve side, I added in an extra category per debtor item.

I then put some forecast assumptions. I've just aligned it to be at the same rates as revenue. This is the section where you can modularise the analysis and create a custom module that separately deals with forecasts on discounts. You may do something like % of revenue, or drive it down even further if required. As you can see my alerts are triggering, but it's just for demonstration purposes only.

On the WC side, because I've added new categories, I can run forecasts on the BS wc items. Again, noting the negative balances, hence the alerts triggering. This reflects the balancing out of your AR to reflect the net A/R on the BS and it will flow through to the CFS as well. There are potential downstream impacts on things like GST / VAT depending on where you are and whether there are sales tax implications, but keeping this simple.

The next step would likely be creating a module to cater for your bad debts component, again an example of a pinch point where you can separate out the analysis.

I would create a module that links in the revenue or the AR - depending on your analysis, and have maybe take up a percentage of AR as bad debt and have that flow through as adjustments into your P&L, BS & CFS. This can definitely get complicated and I would highly recommend reaching out to the team with support credits.

Hope that helps a bit!

Jun

Daniel ODonnell X 2
DO

Jun.  Thanks so much for your time and response.  I agree that the negative revenue presents some challenges and I'm sensing that US presentation of Debtors / Accounts receivable and reserves may be different.  Also, this is specifically a healthcare use case so that adds an additional twist.  Your observation regarding the bow tie analysis is right on and I do believe I'll be needing some support help on this.

Best,

Dan