Bad Debt

[Buddha Buck]

On Thu, May 30, 2013 at 3:39 PM, Hilary <hilary at mayfirst.org> wrote:

> Yes - basically we collect dues for services but sometimes a member will
> drop out or not have enough money to pay.  I don't just want to zero out
> the invoice - I want to be able to figure out how much we weren't able to
> collect.
>
> I've been reading about contra receivable accounts but unsure if that
> works in Gnucash.  The invoice is currently a receivable.  But I can't
> "pay" the invoice from another expense account.  So I wasn't sure if I
> should create a liability account and then create a transaction from the
> bad debt expense account to liablities or create a bad debt receivables
> account or just a regular income account? Sorry - accounting is not
> completely my forte.
>

Yes, it makes sense.  Ultimately, you want the invoice to be marked "paid",
and the "payment" to be charged to Expenses:Bad Debts.  As you notice,
GnuCash doesn't allow you to do that directly.

A similar case happens in my organization where we have the opportunity to
allow a member to get a "scholarship" when we recognize that their
non-monetary contributions are worthwhile, even if their financial
situation doesn't allow them to pay regular dues.  We too want to keep
track of what we are paying in scholarships.

What I've found I can do to accomplish this goal is, like you suggested,
use an intermediary account to register the payment, but then go in
afterwards and edit the transaction to change the account.

Let's take a sad example:  Bob was an active member of my organization, but
was 2 months behind on his monthly $100 dues.  Bob's membership was
abruptly terminated by a fatal car crash, and we don't feel like going
after his estate for the $200 receivable.  So we want to write it off.

So I open up Bob's Customer Report, verify that he has $200 due, then go to
Business->Customer->Process Payment, select Bob as the customer, and put in
$200 for the payment.  I choose "Imbalance-USD" for the Transfer Account,
and complete the payment.  In normal operations there shouldn't be anything
in Imbalance-USD, which is why I used it -- it'll make it easy to find the
transaction.  Then I open the Imbalance-USD account and find the payment
transaction I just made.  It should be the only thing there.  I open it up
as a "split", and change the account on the Imbalance-USD split to
Expenses:Bad Debt.  When I save the transaction by hitting "Enter", it
should disappear from this register.

If I got to the register for "Expenses:Bad Debt", I should see the
transaction.  Double-checking the Customer Report, Bob now owes nothing,
and the invoices are marked "Paid".

It's a little clumsy, but it works, and you (hopefully) won't be doing it
often.

In my "Scholarship" case, I use Expenses:Scholarships instead of
Expenses:Bad Debts.