How to write off bad credit

[Bob Taylor]

On Fri, 2009-01-16 at 09:50 +0800, Wouter van Marle wrote:
> On 16 Jan 09, at 9:18, Cam Ellison wrote:
> 
> > Bob Taylor wrote:
> >> IANAA also. However, I did take an accounting class many many years 
> >> ago.
> >> Since bad debts hasn't changed since then, create an expense account
> >> called, you guessed it, Bad Debts. I would, offhand, credit Bad Debts
> >> and debit the A/P account for this business. I would hope the U.S. IRS
> >> still allows these to be deductible!
> >>
> >>
> > Aye.  This isn't a debt, though - it's on the A/P side.  I think he
> > actually needs to go through the process: it's not a regular 
> > transaction
> > where you can simply transfer it from one account to another.  I think
> > he tried to do that, but it did not clear the payment from the A/P
> > register.  That is, it still shows up in reports.
> 
> Exactly... and there is the core of the problems. To clear the report I 
> basically need to enter a negative amount, and write that off to an 
> expense account.

No. You reverse enter it. You decrease the A/R account by the remaining
balance and enter that amount as an increase in Expense::Bad Debts.

> Closely related: I have another customer who had a claim against me 
> (material supplied and paid for, but after arrival quality was poor so 
> I have to give them some refund). In this case I have to make actual 
> cash payments, even more reason to have them in the customer reports, 
> so I can keep track on how muhc I owe them!

You should have an account Assets::Sales. You should have an account
something like Assets::Sales Returns & Allowances. This account balance
is a contra-account if my memory serves me. It should be a sub account
under Sales. You *can* create an expense account Sales Refunds. This
*should* be a contra-account under Sales.
It doesn't sound like the Gnucash do not wish to correct design flaws.
-- 
Bob Taylor