This process begins with one or more invoices that will not be paid and need to be zeroed out. To write off bad debt, create a negative invoice that will post the total amount to an appropriate GL Account, then create a 0.00 receipt that will "pay" the negative invoice as well as the positive invoices that need to be zeroed out:
- If one does not already exist, create a new line item code for "Bad Debt".
- Use the line item code type "Other"
- Use the Description "Bad Debt"
- Select a Revenue Account reflecting where in the GL the bad debts accrue (i.e. a revenue account for negative sales or an expense account for bad debt).
- Create a new invoice with a single line item using the bad debt line item code that will zero out all bad debt invoices.
For example, if you need to zero out 15 invoices totaling 10,000, create a new invoice with a single line item of -10,000. Note: The date on the invoice must reflect the period in which you are applying the bad debt. This will generate a general ledger transaction reflecting the bad debt.
- Create a receipt for 0.00.
- Add the invoices that need to be written off, plus the bad debt invoice.
- Post the receipt.
This will have no accounting impact beyond the effects from Step 2, but will close all of the related invoices.
Notes about Taxes
If you collect taxes, you'll want negative GL transactions applied to your tax accounts so as not to pay taxes on bad debt. In this case, add your "Bad debt" line item code to the appropriate tax profile(s).
In Step 2, when you add your line item, you will need to enter the total of your bad debt invoices' subtotal. In other words, the line item needs to be a before-tax total since the taxes will be calculated on your bad debt.
Take special note of the bad debt grand total and confirm that it matches the grand total of the invoices being written off. The system's method for rounding taxes require you to account for a very small discrepancy.