Bad Debs Impact to BS, P&L and Cash Flow

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• This is not rocket science, it pretty simple when account receivables at risk on balance sheet you need to provide provision for bad debts in P&L, which will reduce your profit.
• With this two impact your cash flow will also suffer with lower collection
• But there is few thing you should consider in order to minimize the impact on net income:-
  
  - The methodology should be consistent
  - Provision for bad debs should be booked quarterly, this is because you don’t want your balance sheet to change drastically when you book monthly. And booking at year-end is too late to analysis.
  - Finally the reserve should be held in general ledger and not at sub-ledger because customer should not be aware of this reserve on their account.