In order to write off sales invoice(s), whether unpaid or partially paid, as a bad debt:
- Determine the method you will use to write off your bad debts.
- The Direct Method - Each invoice that is a bad debt is posted to Bad Debt Expense (an expense account) as the bad debt is recogniz.
- The Allowance Method - A percentage of your Accounts Receivable is written off periodically or at the end of each fiscal year. The amount that is written depends on the percentage of bad debt you believe your company incurs throughout the year. Normally, you would make a General Journal entry affecting an accounts receivable (used as a contra-asset) account titled “Allowance for Doubtful Accounts” and Bad Debt Expense (an expense account). Then each invoice is written off to Allowance for Doubtful Accounts as the bad debt is recognized.
- Identify the customer and invoice number to be written off as bad debt.
- From the Menu bar, select Tasks, Receipts.
- In the Customer ID field, select the customer that has the invoice(s) that you wish to write off.
- The Apply to Invoices tab will display with the invoices that are outstanding for this customer.
- Enter a unique reference number which will help identify the receipt as a write-off, for example: WO-001.
- Place your cursor in the Cash Account box in the upper right-hand corner. Click on the magnifying glass and select the Bad Debt Expense or Allowance for Doubtful Accounts from the drop-down list.
You may have the Hide General Ledger Accounts global option activated. To look up or enter the Bad Debt Expense or Allowance for Doubtful Accounts; click on the Journal icon to display the Accounting Behind the Screens window where you change the cash account ID. Select Ok to return to the Receipts window. Select the invoice you wish to write off as a bad debt and select its PAY checkbox. Save or Post the entry (depending on your posting method). The entry will be reflected in the Cash Receipts Journal and the Customer Ledger.