Procedure 609.1

Area: Finance

Proposed: 4/22/08

Adopted: 4/22/08

Description: Recording Bad Debt Expense

CALCULATE ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance method attempts to identify a bad debt expense in the same period as the recorded revenue to obtain a timely recognition of the potential bad debt expense. Although estimates are involved in the allowance method, the percentage of receivables that will not be collected can be predicted from past experience, present conditions, and an analysis of the outstanding balances.


1. Review the aged accounts receivable listing for balances that are specifically identifiable as credit risks or uncollectible. These balances should become part of the allowance amount.

2. For the remaining balances, estimate any additional allowances required. This is a process of judgmental analysis to assign a collectibility factor, for example:
• Percentage reserve on balances for the current fiscal year
• Percentage reserve on balances for the prior fiscal year

DOCUMENTATION
3. Documentation held on file in the Finance Department should support the balance of allowance for doubtful accounts. This documentation should include support as to why it may be uncollectible, or in the case of Step 2, above, any supporting analysis and calculations.

ADJUST GENERAL LEDGER
4. Prepare a total of the designated allowance amounts and compare it with the general ledger allowance account balance. The allowance general ledger account should be adjusted at year-end and be supported with sufficient documentation for audit purposes. Adjust allowance and bad debt expense accounts in the general ledger.

The student sub-ledger (SIS) is not adjusted. Year-end adjustments made directly to FRS student accounts receivable are for reporting purposes only and are reversed in the following year to maintain the ability to reconcile FRS to SIS.

WRITE-OFF OF ACCOUNTS RECEIVABLE
5. Review outstanding amounts in the allowance. Identify accounts that are truly uncollectible and should be written off. This is not a routine activity, and is done primarily when legally required.

A clear distinction must be made between canceling accounts receivable and writing off accounts receivable. Accounts receivable can be canceled or adjusted when 1) the institution is not entitled to collect the money, or 2) the debtor qualifies for a waiver or refund. Accounts receivable must not be canceled to avoid write-off procedures.

RECOVERY OF BAD DEBTS WRITTEN OFF
6. Payments received on accounts in the allowance should be recorded as normal payments in the accounts receivable sub ledger.

INTERNAL CONTROLS
7. The annual bad debt write-off amount is to be shown in the annual financial report. External auditors annually will review the accounts receivable aging, the recorded adjustment to bad debt, and the ending balance of allowance for doubtful accounts, for appropriateness and completeness.

ALLOWANCE CALCULATION PERCENTAGES FOR FY2007

FY2007 Credit Student Accounts Receivable 50%
FY2006 Credit Student Accounts Receivable 80%
FY2007 Non-Credit Student Accounts Receivable 50%
FY2006 Non-Credit Student Accounts Receivable 100%
Return Checks 100%
Sponsors >2 years old 100%

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