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
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:
- The receivable is already posted on the customer account.
- 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.
- After the key date for the financial statement, the IVA is reversed and cleared (not covered in the figure Individual Value Adjustment).
IVA posting logic may vary based on country-specific requirements. Always check how your company handles individual value adjustments.
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.
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.