How to write off bad credit

[Cam Ellison]

Doug Laidlaw wrote:
> The OP gave his customer money - a payment in advance, if you like.
>
> So the customer became his debtor.  The customer owed money, just as an 
> invoiced customer owes money.  In the books, he is a debtor: credit bank, 
> debit the customer.  There should be a debit in the customer's ledger sheet.
>
> So why not write the amount off to bad debts?  Bad debts is an expense 
> account.  At the end of the fiscal year, it is transferred to Profit and 
> Loss, which gets it out of the books.
>
>   
It really is not a debt: it's payment for goods and services, and thus a 
deductible expense.  You don't want to do anything in the accounting 
that gets in the way of that. You could also think of it as an 
overpayment, which has occasioned most of the discussion on this 
thread.  Both are payables, and any payment made is a credit, not a debit.

Bad debts are receivables that remain unpaid; accounting for them as 
such allows either reducing the income or increasing the expenses.

HTH

Cam