Businesses need to make sure they have provisions when noting bad or doubtful debts. But which method should you use?

In Castaway, there are 2 options to model bad debt

  1. using the Provision element, OR
  2. using the Sale element's inbuilt bad debt feature

This article will take you through the methods available in Castaway.


1. Which options should I use?

Under the Sale element, you can use the bad debts method to immediately write off the bad debt expense and reduce the Accounts Receivable balance. This would not recognize any provision in the Balance Sheet report.

In contrast, using the Provision element involves creating a liability (negative asset) by setting aside a Provision for Bad Debts first, then writing it off as uncollectible. This reduces the Provision for Bad Debts in any period you decide to write it off in.

So if you need to recognise the doubtful debts in the Balance Sheet, we recommend using the Provision element to record bad debts.

In addition, by using the Provision element method, the bad debts expense can be added to any expense group that you wish in the Profit and Loss report. This provides greater flexibility for financial reporting and allows you to group similar expenses together.


2. Via the Provision element

If you want to estimate and recognise the potential general loss due to bad debts for the entire Accounts Receivable of an entity, you can use the Provision element method. This involves creating a Provision for Doubtful Debts by estimating the bad debt expense that you expect will not be collected. The estimated amount is then recorded as a liability (or better said negative asset) right after the Trade Debtors on the Balance Sheet.

When you become certain that a specific balance is uncollectible, you can write off the bad debt expense against the Provision for Bad Debts. This reduces the Provision and also reduces the net receivables balance.


Creating a Provision element gives rise to provision liability in the Balance Sheet that accrues and accumulates until you write them off.

The Provision liability account is the partner account of the Provision element, where the outstanding balance of the Provision for Bad Debts is recorded.



In this example, I'm creating a Bad Debts provision using % of Sales, recognizing 2% of Total Sales for the month as a Bad Debts expense starting from July 2023 and writing it off by $500 on November 2023, to do that:

  1. Add a Provisions element 
  2. Under the Provision Type, leave the Provision type as the default ‘Doubtful Debts’
  3. From the Provision Expense Method, select ’% of Sales’ 
  4. Tick the boxes next to relevant Sales from the element selector
  5. From the Write Off method, set the Write Off Method to ‘Enter Write Off’
  6. Add 2% in the Link % line for July 2023 and right-click and select Fill right-Current year from the popup action menu. This will populate the same % value for the remaining periods in the current year
  7. Enter $500 in the Enter Write Off line for November 2023 
  8. Review the Profit & Loss Report, the Balance Sheet, and the Cash Flow Statement to confirm the numbers appear as you would expect

Provision settings.png


By maintaining a separate Provision element to model the bad debts, you can track the provision balance and its impact on the financial statements more accurately. This provides greater visibility into the entity's financial position and helps in making informed decisions about credit and collection policies.


3. Via the Sales element

In Castaway's Sale element, there is an option to model bad debts, which can be found under the Cashflow settings. By default, this option is set to None, which means that bad debts are not being modeled. If you wish to write off bad debt, you can choose between "Enter Bad Debts" or "% of Monthly Invoices".

  • % of Monthly Invoices: This option writes off bad debts based on the percentage of the month's invoices. This method is useful if you want to model bad debts that are recurring or if you don't have a specific bad debt amount to write off.
  • Enter Bad Debts: If there is a specific bad debt value that you want to model, it's recommended to use the "Enter Bad Debts" option instead. This option allows you to enter the actual amount of bad debts that you want to write off for a specific period. This can be useful if you have a specific bad debt or if you have a more accurate estimate of the bad debt amount.

Both options above will automatically create a Bad Debt expense for the period and will reduce the receivable account balance and reduce the cash inflow consequently.

It goes without saying that there is no need to add a separate Bad Debt expense element in the Chart of Accounts when using this method.


When using the "Manual Entry" method to record the taxable income for a Sale element, ensure you include the value of the associated bad debts as part of the tax calculations of the Sale element. This can be done by entering the amount of the Bad Debts in the data entry field under the "Taxes" section of the Sale element.