How to write off bad credit

Doug Laidlaw laidlaws at hotkey.net.au
Fri Jan 23 09:34:12 EST 2009


On Tuesday 20 January 2009 7:15:39 pm Wouter van Marle wrote:
> On Sat, 2009-01-17 at 07:41 +1100, Doug Laidlaw wrote:
> > The OP gave his customer money - a payment in advance, if you like.
>
> Exactly.
>
> > 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.
>
> Indeed.
> There is currently a negative amount at the bottom of the report for
> "Total credit" to this customer. So indeed a debit.
>
> > 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.
>
> And that is exactly the problem: you can't do that directly.
> I'm going through the discussion again and I still don't get it how to
> do it so it shows up in the report properly.
>
> For the overpayment of vendor issue: I have solved this by making an
> invoice called "credit_write-off" (spaces are allowed in an invoice ID
> but break the report) of that amount, charging it to an expense account.
> That works OK. I don't consider it too pretty a solution but at least
> it's in the report and it's clear what it is about.
>
> Wouter.
>
> > Doug.
> >
> > On Saturday 17 January 2009 6:16:21 am Derek Atkins wrote:
> > > Quoting Bob Taylor <bob8221 at gmail.com>:
> > > > On Fri, 2009-01-16 at 12:32 -0500, Derek Atkins wrote:
> > > >> Define "handle contra-accounts"?  Of course GnuCash lets you
> > > >> create contra accounts but there is nothing special about them.
> > > >
> > > > If you mean define contra accounts then:
> > >
> > > No, I meant what I wrote, "define 'handle contra-accounts'?".
> > > I know very well what a contra-account is.
> > > I don't know what you meant when you asked "does gnucash handle
> > > contra accounts?"
> > >
> > > -derek
> >
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Perhaps we need to define exactly what you mean by "you can't do that."  
Whatever you want to do, GnuCash can do it.

To write off a debt to Bad Debts, you pass a journal entry.  I am a retired 
lawyer, and I currently use GnuCash for personal accounting, but one way 
would be to go to Tools - General Ledger.  Bad Debts is a financial expense.  
The amount is debited to Profit and Loss, reducuing your profit, and only the 
net Debtors is shown in your Balance Sheet.

Cam has suggested that you should not write it off to Bad Debts, but to an 
account like Discount on Sales, reducing your total sales.  If transactions 
like this are common, you could have a special account for them, alongside 
Discount on Sales.  If you want this item to be listed separately in Trading 
or Profit and Loss, you need to put it into a dedicated account like that.  
If you have a separate Trading Report, discounts go there, and your Gross 
Profit is brought down.  Then Bad Debts are deducted in Profit and Loss.  

(Incidentally, for a professional like me, according to one example I saw, 
Trading consisted of Gross Fees less fee-earners' wages.  Support staff's 
wages are in Profit and Loss.  But I never did it that way.)

Making it show up in the reports is a question of customising your reports, 
and I can't help you with that.  Normally the amount won't be in your Balance 
Sheet at all, because your Balance Sheet is a snapshot of your assets and 
liabilities on balance date, with no history.  Even Profit and Loss will show 
you only the totals of the various accounts.  

HTH,

Doug.





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