Bad Debt Provision

This records the movement in the provision for doubtful debts recognised in the profit and loss account for the period — separate from the balance sheet provision itself (code 1106). As an expense-side entry it normally carries a debit balance when the provision is increased.

Real-world examples

Professional services with a concentrated client base

A consultancy relying on a handful of large clients spots one going through financial difficulty and increases its bad debt provision by £8,000, reflecting the risk that a specific £20,000 outstanding invoice won't be recovered in full. Because client concentration is high, a single risky account can move this code by a meaningful amount in one go: a debit of £8,000 to 8102 (Bad Debt Provision) and a credit of £8,000 to 1106 (the balance sheet provision for doubtful debts).

Wholesaler with a large, varied customer base

A wholesaler with hundreds of trade accounts doesn't provision against individual customers — instead it applies a blanket percentage, say 2%, to its total aged debtor book at the year end. If debtors have grown from £400,000 to £460,000 over the year, the provision increases from £8,000 to £9,200, a movement of £1,200: a debit of £1,200 to 8102 and a credit of £1,200 to 1106. Being formula-based, this movement tracks the overall size of the debtor book more than any single customer event.

Commonly confused with

Because code 8100 (Bad Debt Write Off) sits right next to this one in Overheads & Depreciation, it's a common mis-posting target. Code 8102 is specifically for bad debt provision, while 8100 covers bad debt write off — similar in nature, but keeping them separate is what makes the overheads & depreciation section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

An error posting to Bad Debt Provision won't change total overhead spend, but it will distort the overheads breakdown that's usually reviewed line by line each month to spot cost creep.

Other codes in Overheads & Depreciation