USA How to write off finance charges receivable?


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Will someone please share the FASB codification regarding the write off of finance charges receivable? Our customers signed agreements allowing us to charge finance charges on past due invoices, which should make the interest earned. However, we now want to write these finance charges off. How would I do that? Does the debit hit a bad debt expense that's disguised as an "Other Expense" (so that the interest income and bad debt expense would both hit as an "Other" item when adjusting operating income to net income) or would you simply reverse the interest revenue you recorded in the first place? Do we need an allowance for interest receivable we might not get?
 
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kirby

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Your usual starting point is to follow the industry practice. That means if you have a company in your industry that publishes public financial reports, then read those and see what they do.
Usually, that is not available. So then, follow the practice that gives you the most information. For example, if you simply reverse the interest, then by looking at a monthly P&L report you cannot tell how much interest was reversed that month. So, consider using a contra-interest income acct to hold these amounts, if they are significant.
This is a matter of practice and it is not likely for you to find this minor point codified in FASB pronouncements.
 

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