How To: Write-Off a Bad Debt

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How to: Write-Off A Bad Debt Overview The purpose of this document is to outline how to write off a sale as a bad debt by raising a credit invoice. Please check with your financial advisor before proceeding Credit Invoice (1) Create a billing group for the order to be written off. (2) If there isn’t one, create a service code for “Bad Debts”. This service will likely be added to in the Product Category “Discounts and Other Finance Charges” or something similar. (3) Create a new order within the billing group for the same value as the outstanding debt. The quantity should be a negative number, the price; the value of the write-off and the total will then be a credit for the value of the write- off. In this instance Joe Brown had a debt owing of $500 that has been credited with the following Credit Order. (4) Job Cost the Credit Order. (5) Pay off both the original unpaid balance and the credit balance using Hyper Pay in Accounting. Post the receipts to the bank register - the net effect is zero funds posted to the bank register P a g e 1 | 2 Doc:592675887 How to: Write-Off A Bad Debt Credit Note GL Posting The General Ledger posting of this credit invoice will be included in the month end journal close post and the GL posting will be DEBIT Sales, DEBIT GST Collected on Sales and, CREDIT Accounts Receivable. Automatic Journal Entry for a Credit Invoice Date Account Ref Debit Credit 30/06/2016 A/Receivable 500.00 30/06/2016 Sale 434.78 30/06/2016 GST Collected 65.22 $ 500.00 $ 500.00 Bad Debt Write-off - J Brown General Ledger Journal Batch Entry To show the bad debt write off in the Income Statement as a separate GL Account balance a manual general ledger batch entry needs to be posted moving the debit to Sales to a Bad Debt account. The manual journal entry required is as follows. Manual Journal Entry for a Bad Debt Expense Date Account Ref Debit Credit 30/06/2016 Sales 434.78 30/06/2016 Bad Debt 434.78 $ 434.78 $ 434.78 Bad Debt Write Off - J Brown P a g e 2 | 2 Doc:592675887 .

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