I got this question from a user the other day. I think it illustrates a few concepts pretty well.
"Is there a way to tie bad debt expense (Operating expense) to allowance for bad debt (asset - trade receivable). I am looking to take a historical balance Allowance for BD and add a .1% of revenue each month. In my example I am starting with 110k and adding .1% of approx. 5 million a month. so intended result is January Allowance 115k, February 120k etc"
Here is how you could handle that situation in PlanGuru Using the Non-Financials Section:
- Create a Non-Financial Category, call it "bad debt expense calc". Make this category a "Percent of other categories" and link it to Total Revenue, making it .1%.
In this screen we have made our monthly bad debt expense .1% of Total Revenue.
- Create or update your Allowance for Bad debt expense account. Make the account a "Non-Financial Calculation” and check the "Accumulate Amount" checkbox. Next link the category to the “Bad debt exp calc" Non-Financial category row and enter 1.00 into the period amount grid on the right-hand side. With this approach we will enter an opening (Historical or Actual) balance in our allowance for bad debt account and add the incremental "bad debt expense calc" to it each period, thus increasing the reserve.
So, what we've done in this screen is make the Allowance for Bad debt expense a function of the opening balance plus the activity in the bad debt expense account.
- Create or update your allowance for bad debt expense account. Make it a " Non-Financial Calculation “ and make it a function of the "Bad debt exp calc" NF row and enter 1.00 into the period amount grid. (See attached "bad debt expense" screen shot)
In this screen we have simply made our Bad Debt Expense account equal to the amount calculated in our "Bad Debt Expense Calc" Non-Financial Category.
In summary you will calculate your bad debt expense in the "bad debt expense calc" Non-Financial category, and link this amount both the Allowance for bad debt category (where it will be added each month to the starting balance of this account) and the income statement.