Help on Bad Debt

Create an expense account called Bad debt. Then create an item pointing to that account. Issue a Credit memo that uses the Bad Debt item and apply it to the original invoice. Your income still shows the original invoice and the offset is posted to the Bad Debt expense account.
Reply to
Laura
I posted a journal entry debited the Bad Debt and then credited the accounts receivable, in the name column I used the customer's name for both entries.
Why is my Accounts Receivable still showing the invoice?
When I go to history on the customer, balance shows as 0.00.
Reply to
Lynne's News
Now go to receive payments, and apply the credit to the invoice you want to write off. The AR won't show the invoice after the credit & invoice are matched up.
Reply to
none
When I post it in the Receive Payments and I applied the credit, my only question is where do I deposit it? Cause I shouldn't be paying taxes on this one cause the Customer never paid us.
Reply to
Lynne's News
The credit & debit net to zero so it does not matter where you deposit it. So you can deposit to your bank account if you wish. BTW, it is the income account that will impact taxes and not your bank account.
Reply to
Laura
I shouldn't be paying taxes for this customer. He never paid us. It has increased my income account therefore I will be paying taxes for this customer so how do I correct this?
Reply to
Lynne's News
This depends on whether you are Cash or accrual basis. For cash basis you would post the Debit to Income instead of the Bad Debt expense. Per the IRS: A "cash method" taxpayer should not have a bad debt expense because he/she has never received payment for the services that have already been rendered. Thus, no income has been reported on such services.
An "accrual method" taxpayer may have bad debts generated by non-payment of services provided wherein the income has been reported.
For accrual accounting the instructions that we gave you are correct and you (indirectly) won't pay taxes on it.
Here's the accounting:
original sale:
Debit A/R $100 Credit Income $100
Write off to Bad Debt;
Debit Bad Debt expense $100 Credit A/R $100
Now A/R is zero and the customer does not show a balance anymore. Income still shows the sale which is correct. The net income for tax purposes is Income - Expense=0 so you are ok. I always thought that you would reduce your income/sale account for the lack of payment but the IRS says no since you must recognize the income but also must show the reduction via an expense account.
Reply to
Laura
I always advice my clients to deposit these payments to the bank account they use most so that it can be reconciled during a regular bank reconciliation. It means that the $0 payments do not keep coming back to haunt them during either banking (making deposits) or in future bank reconciliations.
Bob Williams
Reply to
Bob Williams
OK, giving a GST only Canadian situation as example:
Original sale:
Debit AR 107.00 Credit Revenue 100.00 Credit GST Pay. 7.00
Write off: (I do this through a QB General Journal entry) since I find setting up Bad Debt as a line item and the issuing a credit note a big, multistep pain in the butt.
Debit Bad Debt Expense 100.00 Debit GST Payable 7.00 Credit AR (cust name) 107.00
THEN, go to receive payments, and apply the GJ apply the AR credit to the outstanding invoice. The tax collected would be due during the period during which it was charged, but you would get it back during the period during which it was written off. I ususally do this dated December 31st the year it is apparent it will not be paid. EG. your customer was billed in October 2004, I would write it off December 2004 (providing you have not remitted your sales tax for that period, and it appears on your 2004 tax return as a Bad Debt expense). Otherwise, date the write off for the most recent period for which you have not yet remitted sales tax.
-- Stephanie Serba, AICIA Partner, Durham Business Outsource Accounting and Technology
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Reply to
Stephanie Serba
On Sat, 23 Apr 2005 18:02:43 -0400, "Stephanie Serba"
How would you treat a 20.00 payment, received a year later from a Trustee in Bankruptcy?
Debit (?) 20.00 Credit Bad Dept Expense 18.69 Credit GST 1.31 Arno
Reply to
Arno Martens
I would Debit bank account to recognize the money received. I believe your credits are also correct. Or at least that's what I remember my accounting teacher telling us.
Reply to
Laura
I did all that but when it comes to Receiving Payments, it shows that I rec'd the money and my Personal Bank Account shows as in the plus?
Reply to
Lynne's News
You should be receiving a credit and a debit that net to zero. No money is being deposited into your bank account with these transactions.
Reply to
Laura
Post the receipt as:
Debit bank 20.00 Credit Bad Debts 18.69 Credit GST 1.31
OR if you want to get really detailed, you can create an income account called Recovered Bad Debts and use that rather than posting the credit to Bad Debt.
-- Stephanie Serba, AICIA Partner, Durham Business Outsource Accounting and Technology
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Reply to
Stephanie Serba
I thought the payment was received FROM the trustee in bankruptcy?
If so, then the bank should show an increase in the balance of $20.00.
-- Stephanie Serba, AICIA Partner, Durham Business Outsource Accounting and Technology
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Reply to
Stephanie Serba

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