Explaining the Value Adjustment Concept

Doubtful entries reflect the fact that a business partner is not able to pay the receivables. Doubtful receivables are separated from the undisputed receivables for accounting purposes. This is done by posting the doubtful receivable to a separate receivables account.

Individual value adjustments post an expense either for a percentage rate or a specified amount to reflect the actual estimated receivables value in regard to the accounting.

The process flow of receivables adjustment is as follows:

• First, a flat-rate value adjustment based on risk category and age is created using the Adjust Receivables According to Age app. If the default risk increases for individual business partners (for example, due to insolvency), you make an individual doubtful entry and individual value adjustment using the Adjust Receivables app. Using the Adjust Receivables app, you can mark individual receivables as doubtful and value adjust them individually if necessary.
• Then, a cumulative transfer posting of the value adjustments and doubtful entries is executed periodically in the general ledger using the Post Value Adjustments app. This mass activity posts the changes in each run to the individual receivables, doubtful entries, expense, tax, and adjustment accounts. The configurable calculation type controls, the value adjustment calculation. The posted receivables adjustments can be displayed in the general ledger using the Display Posted Receivables Adjustments app.
• Then, the value adjustments and foreign currency valuations are updated in a central table using the Prepare Value Adjustment Analysis app and the schedule of adjustments can be displayed using the Analyze Credit Loss Allowances app.

A doubtful entry is always a prerequisite for an individual adjustment, whereas a doubtful entry can be recorded without an individual value adjustment.

The posting logic of doubtful entry and value adjustment is as follows:

1. Receivable Posting
2. Payment in FI-GL (incoming bank statement)
3. Payment in FI-CA (payment lot processing, partial payment)
4. Mark the receivable as doubtful
5. Individual value adjustment

Steps [4] and [5] generate contract accounting documents without business partner items, which are relevant only for general ledger accounting.