Bad Debt

[Buddha Buck]

On Thu, May 30, 2013 at 12:51 PM, Hilary <hilary at mayfirst.org> wrote:

> Could anyone help me with a step by step way to account for bad debts?  I
> get the basic idea but am unsure how to implement on gnucash.  Any help
> would be appreciated.
>

It depends on how you are accounting for good debts, and if you are talking
about debts owed to you that you are writing off, or debts you owe to
others that are forgiven.

In the "owed to you, but will never be paid" category, presumably the debt
was originally recorded in an asset account like "Assets:Loans" or
"Assets:Loans:Bob Smith".  In which case, if you need to write off the
remaining $10,000 of the loan, you would go into the loan account and add a
transaction reducing the loan amount (as if it were a payment), but set the
counteraccount to be "Expenses:Bad Loans" or something similar.

The end result should be that the outstanding amount of the loan is reduced
to 0, and the Expenses:Bad Loans account is increased by $10,000 (in this
case).

In the "owed by you, but was forgiven as bad debt" category, you would
presumably have a Liability:Loans account, in which case you do the same
thing, but set the counter account to be "Income:Forgiven Debt".