[GNC] Bad Debt Recording

Derek Atkins derek at ihtfp.com
Thu Aug 15 21:43:58 EDT 2024 

What I've done in the past is just process a payment and then change the 
transfer account from the Bank to Expense.
-derek
Sent using my mobile device. Please excuse any typos.
On August 15, 2024 21:36:55 David Cousens <davidcousens49 at gmail.com> wrote:

> Jeff,
>
> I suspect that if you are able to link the write off transaction to the
> invoice as a payment, this would likely clear it from both the Accounts
> Receivable Ageing report and the Client report.
>
> That linking may be problematical for a bad debt transaction as the
> Expense Accounts do not show up in the list of transfer accounts you
> can choose from in the Process Payments dialogue.  Equity does show up
> in the dropdown list but if you use an equity account as the transfer
> account, then your income for the current period is overstated without
> the corresponding Expense:Bad Debts entry to reduce the nett income by
> the amount not paid.
>
> It can also results in an overstatement of assets by the amount of bad
> debts a s receivables always report at their full value and the timing
> of the bad debt expense recording does not match the recording of the
> relevant revenue- OK if you are using Cash accounting , but not if you
> are required to use accrual accounting for your business.  Check out
> the bugs in Bugzilla as I seem to remember this coming up once before.
>
> My accounting textbook states that the debt doesn't die when a
> receivable is written off as uncollectable - the customer's obligation
> to pay still exists.
>
> I haven't had cause to regularly use the business features for more
> than 10 years now, so I am not certain about this however. I set up a
> dummy invoice
>
> David
>
> On Fri, 2024-08-16 at 10:38 +1000, Jeff wrote:
>> Hi David,
>>
>> Again, possibly just my lack of knowledge on the subject, but I
>> thought
>> that essentially you cleared the debt from the client by moving it to
>> the Bad Debt, essentially saying, We are never going to get this
>> money,
>> so lets forget about it. (Note I have other means to flag to not
>> extend
>> credit to those clients if contact continues).
>>
>> However probably the main reason that I thought (or wanted it) to be
>> cleared from the client is:
>> When GnuCash is started, it pops up with a screen showing Outstanding
>> (or Overdue) Invoices.  I know that screen can be turned off
>> completely,
>> however I like the screen but would like it to reflect only the
>> outstanding invoices that we are essentially waiting for, not ones we
>> have given up on ever getting.
>>
>> This is assuming that we are never going to see the bad debt money. I
>> do
>> understand that if for whatever reason that money does come in later,
>> that will be a bit messy, but by the time I want to add it to the bad
>> debts I have given up all hope of getting the money.  An example is
>> the
>> client is now deceased.
>>
>> Again, I might be looking at this completely wrong. Thanks for your
>> help.
>>
>> Jeff.
>>
>> On 16/8/24 10:21, David Cousens wrote:
>> > I think you would have to link the writeoff transaction to the
>> > invoice
>> > in the same manner you link a payment if GnuCash will allow you too
>> > do
>> > that (I don't know for sure if it will- Derek may be able to
>> > confirm
>> > whether it can be). That should clear the invoice
>> >
>> > I would not see why it you would want to necessarily remove the bad
>> > debt from the client report - they still owe you the money, it is
>> > just
>> > your judgement that you are never going to receive it.  Too many
>> > bad
>> > debts to the one client and you would want to look at not extending
>> > credit to them.
>> >
>> > If you ever did receive it, then you would have to do an adjustment
>> > cancelling the bad debt write off and carrying forward the debt
>> > into
>> > the period in which it is paid (bit messy to do).
>> >
>> > David
>> >
>> > On Fri, 2024-08-16 at 09:29 +1000, Jeff wrote:
>> > > Thanks David,
>> > > That is a clearer description of what I am doing.
>> > > The issue that I have, and maybe it is just my lack of general
>> > > accounting knowledge, but the amount ($300) is still showing as
>> > > owing
>> > > from Bob if I either run the Client Report, or open the Invoice.
>> > >
>> > > Shouldn't a written off debt effective remove that debt, so when
>> > > you
>> > > look a that client is shows they owe nothing?
>> > >
>> > > This is the bit that I seem to be missing, or misunderstanding.
>> > > Essentially how do I link it to that specific client?
>> > >
>> > > Regards,
>> > > Jeff.
>> > >
>> > > On 16/8/24 09:17, David Cousens wrote:
>> > > > Jeff,
>> > > >
>> > > > The standard direct write off method for bad debts would be to
>> > > > credit
>> > > > the Accounts Receivable for the amount of the bad debt and
>> > > > debit an
>> > > > Expense:Bad Debts account for that amount. That will remove the
>> > > > bad
>> > > > debt from your Accounts receivable and record it as an expense
>> > > > against
>> > > > the business as you suggested.
>> > > >
>> > > > There are more complex allowance methods where your business
>> > > > has a
>> > > > fraction of bad debts regularly and you are required to use
>> > > > accrual
>> > > > accounting.
>> > > >
>> > > > David Cousens
>> > > >
>> > > >
>> > > > On Fri, 2024-08-16 at 08:53 +1000, Jeff wrote:
>> > > > > Hi list,
>> > > > >
>> > > > > Looking for some advice in recording (writing off) some bad
>> > > > > debts
>> > > > > in
>> > > > > GnuCash when using the Business Invoice/Bills feature.
>> > > > >
>> > > > > Example:
>> > > > > Have Client Bob who owes (has been send and Invoice) for
>> > > > > $1000.
>> > > > > Bob are disputing the full amount and have only paid $700.
>> > > > >
>> > > > > In GnuCash I open the Invoice and record a payment of $700.
>> > > > > This
>> > > > > leaves
>> > > > > Bob owing $300.
>> > > > >
>> > > > > I can record a $300 amount going into Expenses -> Bad Debts,
>> > > > > from
>> > > > > the
>> > > > > Accounts Receivable going directly via the Account page.
>> > > > >
>> > > > > I think that this then effectively wipes out the debt.  (This
>> > > > > may
>> > > > > be
>> > > > > completely wrong)
>> > > > >
>> > > > > My issue is Bob still shows as owing $300.  I, maybe
>> > > > > incorrectly,
>> > > > > assumed it would effectively show as Bob owes nothing as we
>> > > > > have
>> > > > > forgiven the amount owed.
>> > > > >
>> > > > > What step am I missing?
>> > > > > Can it be done through the Invoice screen to essentially
>> > > > > "pay"
>> > > > > the
>> > > > > invoice?  The Payment side of the Invoice only seems to show
>> > > > > "Assets"
>> > > > > accounts (as expected).
>> > > > >
>> > > > > Regards,
>> > > > > Jeff.
>> > > > > _______________________________________________
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