How to write off bad credit

[Cam Ellison]

Wouter van Marle wrote:
> Hi all,
>
> I have an issue with writing off a bad credit. I want to know how to do
> this nicely. I'm using GnuCash 2.0.5.
>
> The issue: I have a supplier who I have given a deposit for materials (a
> credit; a normal thing to do in my business), and now this supplier has
> declared bankruptcy so I lost my money for good. But now how to register
> this properly in GnuCash.
>
> When I call a "vendor report" on this vendor, I have a negative total
> balance. I can not enter a negative payment, nor does it make sense to
> me to enter an invoice. I want to get this balance to 0.
>
> This credit of course has not yet been booked as profit or loss: it is
> now a negative liability, pushing down the actual amount of liabilities
> that I have.
>
> What I have done now: I created a transaction from the appropriate
> Liabilities account to an Assets:Cash account, followed by a transaction
> from this Assets:Cash account to an Expense account. This detour due to
> the horrible implementation of foreign currencies in GnuCash: the
> Liability is in EUR while my Expenses are all in HKD. 
>
> Effectively I am booking this credit as an Expense, and indeed it shows
> up in my Profit and Loss accounts now.
>
> But this way when I check the "vendor report", this transaction doesn't
> register there, and the vendor report still has this credit open.
>
> Any suggestions on how to do this better?
>
>   
In the normal course of events, you would receive an invoice from the 
supplier, and I think (IANAA) that you should follow that route, since 
that's the way GnuCash is set up.  That is, create a fake invoice, 
noting the bankruptcy (to keep your accountant and the government from 
asking useless questions), and proceed as you would normally.  If you 
would usually list these materials as Assets, you'll have to fiddle that 
as well.

HTH

Cam