Generating Receivables Value Adjustments

Objectives

After completing this lesson, you will be able to:

  • Post a individual value adjustment using special G/L indicator E
  • Process flat rate individual value adjustments using the Perform Further Valuations app

Individual Value Adjustments

Value adjustments consider outstanding customer receivables that are not, or are only partially, be paid.

At period end, these doubtful receivables are adjusted either using the following:

  • Individual Value Adjustment (IVA)
  • Flat-Rate Individual Value Adjustment

Note

Flat-rate Value Adjustments (FVA)

In addition to Individual Value Adjustments, a provision is calculated based on empirical values to determine a percentage for possible loss. The resulting value adjustment amount is posted manually in the general ledger, the posting is as follows:

  • Debit the expense account for FVA
  • Credit the balance sheet adjustment account for FVA

This lesson focuses on Individual Value Adjustment and Flat-Rate Individual Adjustment postings.

Individual Value Adjustments (IVA)

During period-end closing, post doubtful receivables as individual value adjustments using the special G/L transaction posting logic. This posting logic applies to individual value adjustments because it is posted in the following areas:

  • Customer account
  • Special G/L account: Individual Value Adjustments for Receivables

What is a Special G/L transaction?

Special G/L transactions are used for transactions in accounts receivable (and accounts payable) that must be reported separately in the general ledger and the subledger. This is achieved by posting to alternative reconciliation accounts instead of the reconciliation accounts for receivables (and payables). For more information on the use of special G/L transactions, refer to: Special G/L Transactions: Overview | SAP Help Portal.

Special G/L indicator for Individual Value Adjustment:

To post to an alternative reconciliation account, use the E special G/L indicator in SAP for individual value adjustments.

This keeps the receivable on both the customer and receivables reconciliation account and allows reporting of adjustments on the customer account at any time.

Use the following accounting procedure for Individual Value Adjustment:

  1. The receivable is already posted on the customer account.
  2. Enter the IVA without tax for the Doubtful Receivables using special G/L indicator E. Use an expense account as an offsetting account for income statement reporting purposes.
  3. After the key date for the financial statement, the IVA is reversed and cleared (not covered in the figure Individual Value Adjustment).
Note

IVA posting logic may vary based on country-specific requirements. Always check how your company handles individual value adjustments.

Business Scenario

One of Carla's customers, whom she manages in the accounts receivable department, got into serious payment difficulties. After consulting with the auditors and the General Ledger accounting team, Carla must enter an individual value adjustment.

Carla needs to learn how to do the following:

  • Enter an individual value adjustment for a customer account in the Clear Incoming Payments app.
  • Review the results in the Display Customer Balances app.

Carla’s Summary:

Use the Clear Incoming Payments app to enter an individual value adjustment. Choose the Clear Open Items button on the entry screen. Navigate to the Post on Account tab and enter the balance sheet adjustment line item using the special G/L indicator E. Use the Post to G/L Account tab page to enter the value adjustment offsetting G/L account.

Enter an Individual Value Adjustment

In this exercise, you enter an Individual Value Adjustment and review the results.

Flat-Rate Individual Value Adjustment

The Bike Company checks the value of its customer receivables at the end of each period to make value adjustments, if required. The value adjustment amount is calculated from the overdue days of an open item.

This is done through a periodic valuation run, which automatically transfers value adjustments to the general ledger.

Value Adjustment Key:

The flat-rate individual value adjustment uses a value adjustment key to determine the age to adjust customer receivables with a particular percentage rate.

In the example that is shown in the figure, Configure Your Solution - Valuations: Define Value Adjustment Key, a customer is subject to a value adjustment of 10% if an invoice is 30 days overdue, 15% if it's 60 days, and so on.

To account for varying credit strength, you can create multiple valuation keys. The customer's company code data stores the value adjustment key. The valuation area is used when configuring the parameters of the valuation run.

Step 1:

Use the Fiori app Perform Further Valuations to create the valuation run. Select the valuation method, 3 – Flat-rate individual value adjustment. Define posting parameters like valuation area, posting date, reversal posting date, and document type. Don’t forget to select the check box, Postings, for a valuation update run. In the Selection Options area, define the company code(s) and customers.

Note

To include already posted individual value adjustments in the calculation, select the With Special G/L Transactions checkbox and enter the special G/L indicator E.

Step 2:

After scheduling, you can display the valuation list and the valuation log. If required, you can delete the valuation run, change the parameters, and restart the run.

Step 3:

The last step of the valuation process is the transfer. G/L documents post the valuation and you use the Doubtful Accounts Valuation app to review the valuated open items.

The Doubtful Accounts Valuation Fiori app displays overdue customer receivables grouped by age categories. It also shows flat-rate individual value adjustments made using Perform Further Valuations. You can view open items and corresponding posting amounts from the flat-rate individual value adjustment in the detail view.

Get more insights about analysis features on Doubtful Accounts Valuation | SAP Help Portal

Business Scenario

As part of her new role, Carla must ensure that the flat-rate individual value adjustment can be carried out successfully. Today, she must check whether a value adjustment key is assigned to her customer and familiarize herself with flat-rate individual value adjustments.

Carla needs to learn how to do the following:

  • Maintain the value adjustment key in the business partner master record.
  • Identify the process of performing a flat-rate individual value adjustment.
  • Use the Manage Journal Entries app and the Doubtful Accounts Valuation app to review and analyze the results of value adjustment postings.

Carla’s Summary:

The Perform Further Valuations app executes different period-end closing activities. To execute the flat-rate individual value adjustment assign method 3. This generates a value adjustment G/L posting (without using Special G/L Indicator E) at the key date, which is reversed automatically based on the posting parameter settings. The Doubtful Accounts Valuation app displays the amounts of flat-rate individual value adjustments under the Allowance column.

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