Hello QBers,I have a customer who paid most, but not all, of an invoice last year. I would like to know how to write off the remaining balance, but don't know what the proper method would be. Should the write off be dated for the 31st of December, 2007, or is there a method for writing it off in the current calendar year?Thanks in advance...--chris
The first thing we need to know - are you on accrual or cash basis accounting. It makes a difference on how to handle this situation.
Mary
OK, you need to close the invoice and write off the amount to bad debts.
First set up a bad debts expense account if you don't already have one. I am going to assume that there was no sales tax on this invoice.
I am using an older version, but, the following procedure should work for your version as well.
Go to receive payments and bring up the customer name/job. You should see the invoice which still has a balance due.
Highlight the invoice and then click on set discount. You can enter the amount to be written off and direct it to the bad debt expense account.
This is the way QB's handles writing off bad debts in their help section. It works for accrual accounting, but, it does not address the issue of recovering sales tax - if there was sales tax on the invoice.
I much prefer to create a credit memo for the unpaid amount - which will address the issue of recovering sales tax. I note on the credit memo exactly what is being done and why (to write off bad debt). I apply the credit memo to the open invoice. The write off does not go into a bad debts expense account - but, it does reduce your revenue in the current year.
Mary
Since you are using the accrual method, a comment on sales taxes. If you are collecting sales tax, you have probably already paid the sales tax to the state . If that is the case, you may have to submit an amended tax return to recover the tax from the state.
You can, however, create an item called Bad Debt adjustment and link that item to Bad Debt expense.
Be advised that 'bad debt expense' is only appropriate if you are on an accrual basis for tax filing. If your taxes are done on a cash basis, you would use the original income account.
Either way, if you make the adjustment item taxable (or not, depending on the original sales), your sales tax will be adjusted in the current quarter. (I am not sure if this matters whether your sales tax preference is set to cash or accrual. . .)
Hope this helps,
Laura D
As for the dating of this adjustment/credit memo. . .this depends on whether or not these numbers went to your tax return yet.
If so, don't change any numbers in 2007.
If not, then, sure - you can date it 12/31/07.
Unless this is a substantial credit, I wouldn't worry about the overpayment of sales tax. . .it might not be worth the time/energy/aggravation to recoup that from the tax agency. .. and who wants to open up that 'can of worms'!?! (unless it is a significant chunk of change)
Laura D
In Illinois, it is a very simple process and no big deal time wise. I agree if the amount is negligible, why worry about it.
