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Thursday, August 04, 2005

Writing Off Bad Debt.

Question:

I have taken over the office for a landscaping company whose internal books are all over the place. We still show outstanding receivables from as far back as 1998. How do I handle these in QuickBooks? My assumption is to void the ones we cannot collect on to remove them from the receivables list, but I am wondering how to keep track of the non-collectibles in a report.

Thanks in advance

Answer:

When doing bookkeeping, the argument could be made that the most important thing to keep strait are your receivables. After all, if you keep sending statements with a balance to customers who have already paid, they are not going to be happy, they also will begin to question the professionalism of your firm.

Now to your question. If it were me, this is what I would do. First, I would print out a detailed report of all outstanding invoices. I would present this to the owners/managers who would know who owes what. This will give you a starting point.

To write off bad debt follow these instructions from the QuickBooks Help Menu:

1. If necessary, create an account for Bad Debt in your Chart of Accounts.

2. Record the bad debt.

To follow this procedure, you may need to turn off the Sales & Customers preference for automatically calculating payment amounts first. This preference is enabled by default and QuickBooks will calculate and fill in the amounts for you unless you turn the preference off.

To change the preference
1. From the Edit menu, choose Preferences.

2. In the Preferences window, select the Sales & Customers icon.

3. Click the Company Preferences tab.

4. Clear the preference for automatically calculating payments.

To record the bad debt


1. From the Customers menu, choose Receive Payments.

2. In the Receive Payments window, select the name of the customer from whom you incurred the bad debt.

3. Leave the amount field at 0.00.

4. In the list of outstanding invoices or statement charges, click in the checkmark column in front of the line item that will not be paid. No checkmark will appear, but this item will be the one that appears on the Discount tab.

5. Click OK to dismiss the message about applying payments greater than the total payment.

6. In the Receive Payments window, click Discount & Credits. In the Discount and Credits window, enter the amount of the bad debt in the Amount of Discount field, and enter the name of your bad debt expense account in the Discount Account field.

7. Click Done in the Discount and Credits window.

Note: The procedure described above does not affect your sales tax liability.

8. In the Receive Payments window, save the bad debt transaction.

9. If necessary, change your sales tax liability.


Hope this helps.

Remember though, once you get this strait be very vigilant about keeping invoices and payments correct.

1 comment:

Anonymous said...

I am in a similar situation where the company has formed a new corporation, and the initial few months things fuzz together and are hard to seperate. Invoices submitted to some clients are shown as outstanding, however we have been paid and the payments received just weren't applied correctly against the invoices, and short-pays for things were not documented. Is this a situation to create the bad-debt account for?

I'm am not a trained accountant, bookkeeper, or even got admistrative assistant or office manager. I'm just a driver-turned office-guy who can hack code to make databases useful tools. I'm assuming my long comment to the effect of "We no longer do business with Company X as of this date. We have collected all monies. Entering a (negative amount) to zero the invoice." is a Bad Way to do it? Or is this Bad Debt a better Generally Accepted Accounting Principle concept?