[GNC] Best way to close unpaid invoices?

[David Cousens]

The methodology is a little different for each case.

Where they have not paid the full amount of the invoice without your
acquiesence, then you would generally regard the unpaid amount as a bad
debt.  In a direct write off, you would create an "Expense:Bad Debts"
account and you would credit the Account Receivable account  by the amount
of the write off and debit the Expense:Bad Debts account by the amount of
the write off. Your income is unaltered at the amount recorded on the
invoice and you are compensated by t the reduction in your Profit ( and
hence taxable income) by the amount of the bad debt.  The receivable in the
form of the invoice is still active and you are still legally entitled to
collect on the debt.  If the customer eventually paid you at some time
later, you would create a transaction for the Bad Debt entry between
Expenses:Bad Debts and Accounts Receivable at the time you receive the money
and record the payments as usual.  Depending on whether your accounting is
on an accrual or cash basis you may need further adjustments.  There are a
number of ways of accounting for bad debts other than a direct write off
where this is a regular feature in your business operations and you really
need accounting advice if you need to implement them. 

if you agree to reduce the invoice amount, you could unpost the invoice,
alter it appropriately and then repost it. This however does not record that
you have offered the client a discount on the original agreed price.

An alternative would be to treat it as a discount on the sale. In this case,
you would use a contra account to your :Income:Sales Revenue  account i.e.
"Income:Sales Revenue:Sales Discounts". To record the discount,  you would
credit the Accounts Receivable for the amount of the Discount you are
applying to the invoice and debit " Income:Sales Revenue:Sales Discounts"
for the amount you are discounting the invoice by. Again the Invoice remains
at its original value and in this case your income is adjusted  by the
amount of the discount.  

The above are possible accounting treatments. Whether they are allowable
will be jurisdiction dependent and you should seek local accounting advice
as to whether the above approaches or another methodology is applicable for
the reporting arrangements you need to comply with.



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David Cousens
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