Bad Debt VS Doubtful Debt<\/strong>
A bad debt is an outstanding debt that cannot be recovered for one or several reasons. This can occur when two companies or individuals are involved in a business deal that goes south. Let\u2019s say business A hires business B to complete a job. Business B then charges business A for the work done. Business A, however, is unable to pay for the work and therefore refuses to do so. It is clear that Business A will not be paying the debt, so business B will have to write it off as a bad debt. If you deal with debt and drawing up financial statements, you\u2019ll want to note that bad debt is not the same as doubtful debt. These two are often confused and admittedly similar, but they are not interchangeable. A doubtful debt means it is unlikely that a company or individual will be able to collect a debt, but the possibility still exists. Once it becomes clear that this debt cannot or will not be paid, it becomes a bad debt.
Provisions<\/strong>
These two types of debt are dealt with differently on income statements, so it is important to be aware of the difference. In addition, the Monetary Authority of Singapore (MAS) determines if you\u2019ll be given any provisions and what type they will be depending on what type of debt you\u2019re claiming. These provisions will affect how you file your income taxes with the IRAS. You\u2019ll want to know the difference, so you won\u2019t run into any issues with either of these organizations.<\/p>\n\n\n\n
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<\/figure>\n\n\n\nListing Bad Debt on an Income Statement<\/strong> Legal Proceedings<\/strong> Income statements in Singapore can be complex and confusing. Figuring out how to traverse the confusing portions of an income statement, such as bad debt recovery, can be challenging if you\u2019re not entirely sure what you\u2019re looking at. It can also be difficult when you\u2019re told to find something on an income statement and you\u2019re not entirely sure what you\u2019re looking for. The biggest challenge, however, can be figuring out how to write an income statement. Income statements have to be written up for a variety of different reasons. For example, the Inland Revenue Authority of Singapore (IRAS) requires income [\u2026]<\/span><\/p>\n","protected":false},"author":1,"featured_media":102,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_joinchat":[],"footnotes":""},"categories":[1],"tags":[],"yst_prominent_words":[],"class_list":["post-101","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles"],"_links":{"self":[{"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/posts\/101","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/comments?post=101"}],"version-history":[{"count":1,"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/posts\/101\/revisions"}],"predecessor-version":[{"id":105,"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/posts\/101\/revisions\/105"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/media\/102"}],"wp:attachment":[{"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/media?parent=101"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/categories?post=101"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/tags?post=101"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-json\/wp\/v2\/yst_prominent_words?post=101"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
In order to comply with IRAS tax laws, you have to write off bad debts in your accounts. These write offs must appear in your financial records, so it\u2019s important to know how to list bad debt on an income statement. This information is also important to know when it comes time to file your taxes. Where and how a bad debt is listed on an income statement, depends on the type of debt. You will have to determine whether or not a bad debt is deductible from your expenses. A trade debt is considered deductible, whereas a non-trade debt is considered non-deductible. Once you\u2019ve determined the type of bad debt, you may list it accordingly. Both deductible and non-deductible bad debts will be listed under the Business Expenses category on your income statement.
Recovering Bad Debt<\/strong>
While knowing how to list bad debt on your income statement is important, it is far more beneficial for you to know how to recover bad debt. You may want to note that the IRAS may allow you to file for bad debt relief, provided you meet all of the criteria. Before this can be done, however, you must take reasonable steps to recover the debt. This can be done in a few different ways, and will ideally result in you actually recovering the debt rather than having to file for relief.
Debt Collection Agencies<\/strong>
One option for recovering debt is by sending it to a debt collection agency. A debt collection agency will work hard to recover your money, because generally you don\u2019t have to pay them if they don\u2019t recover it. This is a good route to go when you want to avoid litigation as long as possible. Some agencies even offer in-house legal support, so you don\u2019t have to spend excess money on legal fees. Keep in mind, however, that debt collectors are strongly disliked by Singaporeans. Some companies resort to scare tactics and border on harassment, so if this is the route you choose, make sure you find a reputable company.
Knowing the Debtor<\/strong>
The best way to recover bad debt is by getting to know as much as you can about the debtor. If the debtor is an individual, you may want to bring up bankruptcy as an option. Declaring bankruptcy in Singapore result in personal restrictions, so if possible, the individual may decide to pay you simply to avoid these restrictions. If the debtor is a company, however, you\u2019ll want to familiarize yourself with the company\u2019s assets. These assets can be seized if you end up having to go to court over the debt. If your debtor has no money and little to no assets, you\u2019ll want to avoid expensive legal proceedings since you won\u2019t end up getting paid anyway. It would be better to try to set up a payment plan for either type of debtor.<\/p>\n\n\n\n![\"\"](\"https:\/\/glutenfreepleasure.com\/__proxy_domain\/www.debt-collector-singapore.com.sg\/wp-content\/uploads\/2020\/07\/bad-debt-recovered-in-income-statement3.jpg\")
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Filing a claim should be your last resort, since it can be expensive and doesn\u2019t always result in debt recovery. On the plus side, you\u2019ll have a lawyer to help you with all of the sticky legal aspects. Typically, they\u2019ll start by sending a letter of demand to the debtor. If this doesn\u2019t result in payment, the court will proceed with a hearing. The court will order the debtor to pay, but they may still refuse. At this point, the court will seize the debtor\u2019s assets and sell them in order to pay the debt.
Listing Bad Debt Recovery on an Income Statement<\/strong>
Anytime a bad debt is recovered, it has to be declared on your income statement. This is typically done through an adjustment to your accounts. If you\u2019ve already written off the bad debt, it will be listed on your income statement as an expense. When it becomes recovered, you will have to include it as part of your gross profit for the fiscal year in which it was recovered. It is also possible to list the bad debt as a negative in your list of expenses, which may help make it clearer that it was a recovered debt.
Tax Returns and Recovered Bad Debt<\/strong>
Bad debt recovered in an income statement will also have to be listed on your IRAS tax returns. This is especially important if you\u2019ve previously written off the debt. In this case, you\u2019ll have to fill out an adjustment form. You will be required to list all previously written off bad debts that were subsequently recovered in order to comply with the tax laws, so it is important to keep all of your financial records in order.
Conclusion<\/strong>
Recovering bad debt might lead to additional work on your income statement, but the work is worth your time. Any time you\u2019re able to recover a debt it should be viewed as a positive. This may lead to adjusting your financial records, but remember, it also means you\u2019ve come out on top.<\/p>\n","protected":false},"excerpt":{"rendered":"