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Training Tidbit: In Accounts Receivable, how do I write off a previously entered invoice for a customer as bad debt?
To write off a previously entered and posted invoice for a customer as bad debt within the Accounts Receivable module, complete one of the following four most common options:
Option 1:
Set up a new invoice transaction for the appropriate department called Write Off. If operating Accounts Receivable on an accrual basis, enter a Bad Debt expense account in the Default Revenue Account field for the new invoice transaction. Then enter an invoice for the customer using the newly created Write Off invoice transaction, being sure to enter a negative invoice amount and a negative invoice detail amount. When the next payment for the customer is entered, the outstanding invoice detail lines from both the initial invoice (the one to be written off as bad debt) and the new invoice (which used the Write Off invoice transaction with a negative amount) will display. On the payment, select the invoice detail lines for both of the invoices in order to clear them out (equal zero) and use the same payment transaction (use a normal payment transaction for the department) for the selected detail lines. If operating Accounts Receivable on a cash basis, be sure to enter the payment using the appropriate revenue account for the original invoice detail line and a Bad Debt expense account for the detail line for the invoice which used the Write Off invoice transaction.
Note for Accrual Basis: If operating Accounts Receivable on an accrual basis, when the invoice that used the Write Off invoice transaction was posted, the entries that posted to General Ledger included a DEBIT to the Bad Debt expense account and a CREDIT to the Accounts Receivable account since the invoice was for a negative amount. Then when the payment which included the selected invoices was posted, the entries that posted to General Ledger included DEBITS and CREDITS to both the cash account and the Accounts Receivable account for the positive and negative amounts, cancelling (zeroing) each other out.
Note for Cash Basis: If operating Accounts Receivable on a cash basis, no entries posted to General Ledger when the invoice that used the Write Off invoice transaction was posted. Then when the payment which included the selected invoices was posted, the entries that posted to General Ledger included a DEBIT and a CREDIT to the cash account for the positive and negative amounts, cancelling (zeroing) each other out, and a DEBIT to the Bad Debt expense account and a CREDIT to the applicable revenue account for the original invoice.
Option 2:
Void the invoice if the full invoice is to be written off. Reminder, only invoices that have not yet been paid or partially paid can be voided. When voiding an invoice to write off bad debt, keep the following items in mind: 1) the original entries to General Ledger are reversed (applicable if operating Accounts Receivable on an accrual basis); 2) no entries will be posted to a Bad Debt expense account and so manual journal entries will need to be completed; and 3) this option does not provide a way to indicate the invoice was voided to write off bad debt (there is not a comment or audit trail that tracks the reason for the void).
Option 3:
Complete the Clear Outstanding Invoices option to select the lines on an invoice to be written off. When using the Clear Outstanding Invoices option to write off bad debt, keep the following items in mind: 1) the original entries to General Ledger are reversed (applicable if operating Accounts Receivable on an accrual basis); 2) no entries will be posted to a Bad Debt expense account and so manual journal entries will need to be completed; and 3) this option does provide for a comment (description) to be entered to track the invoice was cleared to write off bad debt (Tip: When completing the Clear Outstanding Invoices option, the Invoice Detail Description field can be changed).
Option 4:
Enter a payment for the customer as normal, using a regular payment transaction for the department (and the corresponding account number) and entering the Payment Detail Description as Write Off. Then after posting the payments, enter manual journal entries in General Ledger (applicable if operating Accounts Receivable on an accrual basis or cash basis) to CREDIT (decrease) cash since the money was never actually received for the payment and DEBIT the Bad Debt expense account.