Topic: how do we deal with default payment
Hi,
We won't be able to collect most of our aged invoices (bad debt).
How do we record this?
Thank you
Eric
Re: how do we deal with default payment
This is an accountanccy question. You should contact a local accountant for this.
Maybe there are some accountants among us that can give some instructions.
Joe
Re: how do we deal with default payment
One option is to do a normal customer payment and allocation for the bad debts. This will debet your bank account. Immediately after that you do a Bank payment from this bank account with the same amount and use the account for bad deptors (You may need to create such an expense account). Now the bank account is even. Make some good memo/comments.
And you are done.
/Joe
4 12/27/2013 09:03:15 am (edited by erwindebruin 12/27/2013 09:05:20 am)
Re: how do we deal with default payment
You can also do the following to keep better track of your aged receivables:
1. Create the following G/L accounts (only the first time, if not already created)
* Bad debtors (Balance)
* Provision bad debtors (Balance)
* Write-off bad debts (P&L)
Make sure both balance accounts are in the same G/L Accounts Group
2. Create an article "write-off bad debt" with the "bad debtors" account as default COGS account and default Revenue account
3. Issue a new credit note to the bad debtor with the article "write-off bad debt" and the full outstanding amount as credit amount.
4. Allocate the issued credit note to the customer/outstanding receivable. The receivable is now moved from your A/R account/list and recorded as receivable on the created "Bad debtors" account (receivable).
5. Make a manual journal entry:
Write-off bad debts (P&L) costs
A/ Provision bad debtors (Balance)
6. In "old-school accounting" it is common to not write off the whole amount, but the amount minus 0,01. For example if your outstanding aged amount for a customer is € 100, write of € 99,99 in step 5 (so after issuing the credit note for the whole amount and only when the recaivable is "replaced" outsite the regular A/R account/list). Now you still have an outstanding amount of € 0,01 (€ 100 om the bad debtors balance account, minus € 99,99 on the provision bad debtors balance account. Togehter € 0,01). This € 0,01 will cause the debtor will remain visible in your administration and will not disappear/forgotten.
Re: how do we deal with default payment
joe wrote:
One option is to do a normal customer payment and allocation for the bad debts. This will debet your bank account. Immediately after that you do a Bank payment from this bank account with the same amount and use the account for bad deptors (You may need to create such an expense account). Now the bank account is even. Make some good memo/comments.
And you are done.
/Joe
Hi Joe,
What about the tax recorded during the customer payment?
Re: how do we deal with default payment
@ericta.
If tax is involved on the invoices, you should credit these records as well.
I guess the solution from erwindebruin is better.
/Joe
7 12/28/2013 04:36:52 pm (edited by ericta 12/28/2013 09:43:15 pm)
Re: how do we deal with default payment
ericta wrote:
erwindebruin wrote:You can also do the following to keep better track of your aged receivables:
1. Create the following G/L accounts (only the first time, if not already created)
* Bad debtors (Balance)
* Provision bad debtors (Balance)
* Write-off bad debts (P&L)
Make sure both balance accounts are in the same G/L Accounts Group
2. Create an article "write-off bad debt" with the "bad debtors" account as default COGS account and default Revenue account
3. Issue a new credit note to the bad debtor with the article "write-off bad debt" and the full outstanding amount as credit amount.
4. Allocate the issued credit note to the customer/outstanding receivable. The receivable is now moved from your A/R account/list and recorded as receivable on the created "Bad debtors" account (receivable).
5. Make a manual journal entry:
Write-off bad debts (P&L) costs
A/ Provision bad debtors (Balance)
6. In "old-school accounting" it is common to not write off the whole amount, but the amount minus 0,01. For example if your outstanding aged amount for a customer is € 100, write of € 99,99 in step 5 (so after issuing the credit note for the whole amount and only when the recaivable is "replaced" outsite the regular A/R account/list). Now you still have an outstanding amount of € 0,01 (€ 100 om the bad debtors balance account, minus € 99,99 on the provision bad debtors balance account. Togehter € 0,01). This € 0,01 will cause the debtor will remain visible in your administration and will not disappear/forgotten.
How about discount the whole amount less 0.01 at payment as a way of recording the default/bad debts?
when we do discount at payment, does the discount apply to tax too?
let's say
invoice balance $1000 (including 8% tax)
customer paid $500, we give $500 discount to close the bad debt.
how much tax does the software calculate for this order?
still $80, or it's aware of the the discount and collect $40 on the tax?
Thank you
- apmuthu
- Moderator
- Offline
Re: how do we deal with default payment
Yes, and collect the money off the account books into your pocket! The boss will never know 
Nice work. Good Standard Operating Procedure, provided that good people manage the books and those who pay their debts after a long time do so with a view to continue to do business and not for merely avoiding long term legal hassles. That way jest above will not become real.
9 12/30/2013 08:56:43 pm (edited by ericta 12/30/2013 09:39:02 pm)
Re: how do we deal with default payment
apmuthu wrote:
Yes, and collect the money off the account books into your pocket! The boss will never know
Nice work. Good Standard Operating Procedure, provided that good people manage the books and those who pay their debts after a long time do so with a view to continue to do business and not for merely avoiding long term legal hassles. That way jest above will not become real.
Alright, stick with the credit note then.
Thank you.
- seahawk
- Senior Member
- Offline
Re: how do we deal with default payment
This is quite a cumbersome process for many mistakes to happen.
You can not actually do a credit note, because then you should get the items back in stock, which is not true. Client still have the stock or received the service.
If we could have selected a customer and (Credit) them under the journal entry with the bad debts account as the second line (Debit) account, then we would solve the problem in one easy step.
Would that be at all possible?
Wynand
Wynand
11 02/26/2015 08:43:57 pm (edited by seahawk 02/27/2015 03:56:39 am)
- seahawk
- Senior Member
- Offline
Re: how do we deal with default payment
I created a "Bank Account" under the Suspense account Called [Bad Debtors Control Account]. I then do a Custer payment with complete description of the invoice number with the [Bad Debts Control Account] bank account.
Then I go to my bank Payments and pay under Miscellaneous the amount to the "Bad Debt Account" under expenses.
After all the bad debts was sorted the "[Bad Debtors Control Account]" should be Zero
Wynand