AGA Today
Federal Accounting Corner: Reporting Allowance for Loss on Accounts
Receivable
Eliminating Receivables
In order to eliminate the
effects of transactions between federal agencies for the governmentwide
financial statements, Treasury's Financial Management Service (FMS)
requires that trial balances submitted to them (through FACTS I and
FACTS II) include information on the trading partner for receivables,
payables, reimbursements, expenditures, revenues and expenses. Included
in these accounts are all receivable accounts (those that begin with 13)
except 1399 Allowance for Subsidy. It also includes some of the
budgetary receivable accounts, such as 4251 Reimbursements and Other
Income Earned - Receivable.
Allowance for Loss
When an agency recognizes
revenue or a reduction to expenses associated with a receivable, the
matching principle requires that the agency also recognize a potential
expense (contra-revenue for nonexchange revenues) for any loss due to
the debtor's lack of creditworthiness. The account, which offsets the
receivable to reduce it to its anticipated value, is 1319 Allowance for
Loss on Accounts Receivable. The Standard General Ledger (SGL)
transactions associated with this account are:
Allow for bad debts:
dr. 6720 Bad Debt Expense
D204
cr. 1319 Allowance for Loss on Accounts Receivable
Write off bad debts:
dr. 1319 Allowance for Loss on Accounts Receivable
D206
cr. 1310 Accounts Receivable
Trading Partners
Treasury's FACTS I interface
requires that Trading Partner be reported for both 1310 Accounts
Receivable and 1319 Allowance for Loss on Accounts Receivable. This
works OK if the agency records the allowance on each receivable
separately. It is my experience, however, that agencies estimate the
allowance as a percent of the open balance, with no vendor (or just a
miscellaneous public vendor) on the entry. When this is the case, the
estimate (entry D204) will never have a Trading Partner, while the
write-off (entry D206) could have a Trading Partner, resulting in a
debit (unnatural) balance for the Trading Partner in account 1319.
Agencies that do not record
vendors on the allowance estimate should set their FACTS interface so
Trading Partners are ignored in account 1319, and balances are always
reported as if they were with the public (the same holds true for the
other allowance accounts 1329, 1349, 1359 and 1369). If Trading Partner
is entered on the accrual, then the accrual must be increased to match
or exceed any write-offs, so the balance by Trading Partner never
becomes a debit.
The basic idea behind the
eliminations is to reduce accounts such as payables and receivables so
these are not inflated by transactions within the reporting entity.
Usually 1310 Accounts Receivable by one agency is offset by 2110
Accounts Payable in the other. However, there isn't an offset account
for 1319—an agency isn't going to discount their payable by the
likelihood they won't be able to pay. FMS should rethink its requirement
that Trading Partner information be reported for the receivable
allowance accounts. —Simcha Kuritzky, CGFM CPA
This column is provided as
part of a free exchange of ideas in federal accounting, and is not
reviewed substantively before publication. Please send all comments,
queries, or corrections to
Simcha.Kuritzky@CGIFederal.com.