[GNC] Best way to close unpaid invoices?

[David Cousens]

There is no need to zero out the invoice. It remains as it originally was and
the debt remains on the books.  What the debt write off does is correct your
income for the amount of income you expected to but didn't receive and
adjusts the accounts receivable to reflect that you do not expect to receive
that income. 

If you cancel out the invoice and at some future time the client coughs up
the money, you will have no way of accounting for how that money was
received but a simple adjustment allows you to reverse the bad debt write
off and then record the payment against the original invoice.   

When you make a payment against an invoice normally, you do not change the
amount of the invoice, itself but you increase the amount of an asset(bank
account) and decrease the amount of the Accounts receivable (also an asset )
by the same amount.

The invoice creates an increase in an income account  and an increase in the
Accounts receivable when it is posted to you accounts. In the case of a bad
debt you do not adjust the income but an expense account which has the same
effect on your profit. Expense accounts can be regarded as contra income
accounts.

This way your accounts contain a record of the events as they affected your
finances at the time the events occurred. If they are annotated well enough
anyone can reconstruct the sequence of events as recorded

David Cousens



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David Cousens
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