Bad Debts

Accounts Receivable Menu -> Bad Debt Write-Offs -> Bad Debts

When it is decided that an overdue account cannot be collected through regular collection methods (i.e. letter writing and phone calls), the overdue invoices can be submitted to a collection agency or legal firm to collect on your behalf for a fee. At this time, the invoices should be written off and expensed on the books as a bad debt.

These invoices can be tracked through the Bad Debts and Collections programs, and if a recovery of a bad debt should occur, any money received can be recorded. By writing off the account at this time, the account will cease to appear on your Aged Accounts Receivable Reports.

G/L Posting Accounts for Bad Debts:
The Bad Debts and Collections programs automatically select specified General Ledger Accounts to record their entries, as assigned in G/L Default Accounts by currency.
The required G/L Accounts in this table include:
Accounts Receivable
Finance Charges
Exchange Accrual
Bad Debts Expense
Bad Debt Recoveries
Collection Expense
Legal Fees Expense
GST Paid On Purchases (in the U.S. use Suspense Account)

If desired, separate G/L Accounts can be assigned to each of the Bad Debts default accounts, or the same G/L Account can be used (i.e. assign Bad Debts expense account to Bad Debts Expense, Recovery, Collection and Legal Fees default accounts).

Bad Debt Preparation:
Before writing off a customer, print the customer's account from Customer Account Inquiry or the Customer Statement to identify the outstanding invoices and finance charges.
From this listing, print out a copy of each outstanding invoice. Then determine the total amounts for taxes, finance charges and net bad debt amount.
This information is required to determine the amount to write off.

The prompts to enter a Bad Debt include:

Enter the bad debt customer number or look it up in the Accounting Customer Search window.

In Add mode for a new record, accept today's date or enter a date for the bad debt entry.
This date will become the date the bad debt is expensed to the General Ledger and becomes effective on the customer's account.
Multiple write-off records can be written per customer per day if required for different currencies or taxing purposes.

Existing Write-Off Search:
In Change mode a window is provide on this field to view and select from existing Bad Debt Records for this customer displaying the date, Write-Off Invoice # and the amount.
Note: Any changes made to Bad Debt records that are already posted will not be saved.

Accept the invoice number W/OFF, or type in the desired invoice number to assign to the write-off.

Some firms write off the entire customer account at once, in which case the invoice W/OFF will suffice.
Other firms prefer to write off each invoice separately on the customer's account so a specific number can be entered.
Check with your company policy on this matter.

Enter the division or selected it from the drop-down list.
When the Divisional Posting feature is not activated, the Bad Debt Credit to the A/R Control Account always posts to blank Head Office and the Bad Debt distribution Debit transactions post to the selected Division.

Division Posting in the General Ledger:
The Activate G/L Posting By Division feature can be activated in the Support Application Parameters, so that the posted Bad Debt transactions reflect the corresponding invoice divisions in the G/L.

  • Process Flow for Posting by Division:
    When this feature is activated, the value in the Division field can be ALL or a specific division, which filters the list of the customer's eligible outstanding invoices in the resulting selection window.
    The aging values in this selection window reflect the entire customer account.
    Multiple invoices can be selected for the write-off and when the window is closed, the outstanding total amount for those invoices becomes the Gross Write-Off Amount on the Bad Debt record and cannot be changed.

    The Division cannot be changed in Change mode, so if a correction is required delete the Bad Debt record and re-enter it.

  • Posting by Division:
    When multiple invoices are written-off as part of the same Bad Debt transaction, one write-off invoice is created per division.
    The write-off invoice number in the Customer Account Inquiry is prefaced by the corresponding division.
    The posted Gross Amount for the Bad Debt will be the accumulated outstanding invoice total for each division.
    Taxes, Finance Charges, Net Amount, Amt Collected, and Collection Costs will be totalled proportionally by division based on the source invoice amount.
    Any rounding values will post to blank division.

    Note: When a Bad Debt is comprised of invoices from multiple divisions, the Divisional breakdown does not show on the Bad Debts posting report, but can be reviewed in the G/L postings in G/L Inquiry by Transaction #.

Leave this field blank for the Unassigned Batch, or type in a Batch Code, or select a Batch from the drop-down list as setup in A/R Invoice Batch Codes.

Note: By using separate batches, Invoice entry and posting is NOT locked for other batch codes.

Enter the currency code or select it in the window.
The currency should match the invoice or finance charge currency that is being written off, however this is not validated.
Separate write-off transactions need to be done for separate currency codes.

Currency Exchange:
If the currency assigned here has a currency exchange rate in Currency Codes, and the exchange posting processing has been activated from Support Application Parameters, G/L posting transactions will be generated for the amount of the exchange on only the finance charges and the bad debts portions of the write off.
The currency Exchange account is credited and the Finance Charge or Bad debts account is debited as defined in the G/L Default Accounts.

If the Divisional Posting feature has not been activated the customer's current account balance will appear on the screen.
Accept this value to write-off the entire account, or type in the total amount (including taxes and finance charges) to be written off.
Enter the amount as positive.

If the Divisional Posting feature has been activated in the Support Application Parameters this dollar amount reflects the outstanding total of the invoices selected to write-off, and cannot be modified.

This can be used to generate a tax write-off posting.
  • Standard Taxes:
    The tax code for Tax 1 defaults from Customer Information and if the operator has role permission, the tax code can be over-typed for this invoice as required.
    A drop-down list is provided to view and select from valid tax codes.

    If your firm uses the Tax Activity Report to calculate BAS (Business Activity Statement) the standard Taxes written-off and collected in the Bad Debts and Collections are always included in the Tax Activity Report.

  • Enhanced Taxing:
    Select a tax code from the drop-down list.
    Operator role permission to change the Tax Code is not respected on this field with Enhanced taxing as there is no default displayed for the customer.

Accept the tax portion calculated using the tax percent, that was not collected from the customer and is now to be written-off. This can be over-typed as required.
This amount will be debited against the GL account for this tax code. defined in Tax Codes.

This can be used to generate a second Tax write-off posting using the same rules outlined above.
If required enter a Tax code for the write-off or select one from the drop-down box.
Accept the tax portion calculated using the tax percent, that was not collected from the customer and is now to be written-off. This can be over-typed as required.
This amount will be debited against the GL account for this tax code.

Enter the amount of finance charges which was applied against the customer's account, but not collected.
Enter the amount as positive.

The taxes and finance charges are subtracted from the Gross Write-Off Amount to equal the Net Write-off Amount.
The amount displayed will be the actual amount posted to Bad Debt expense as defined in the G/L Default Accounts.

Accept the customer's current credit rating or update it by selecting a new rating from the drop-down list.
The new credit rating will be saved in the Customer Information.

Window to view and maintain a list of invoices for this customer that should be excluded from the commission reports as outlined in Invoices to Exclude from Commission Reports.
This list can be modified as required.

If applicable, enter the name of the Collection Agency or Attorney to which this bad debt was turned over for collection.
This appears on the Bad Debts Report.

Enter the date when this account was given to the Collection Agency or Attorney for collection.
This appears on the Bad Debts Report.

Any amounts already collected for this write-off are displayed for information only purposes.

Any costs charged on amounts already collected for this write-off are displayed for information only purposes.

If applicable, enter the Standard Industry Code (SIC) which applies to this customer using up to three characters.
This appears on the Bad Debt Report.

The Standard Industry Code is a code given to a sector of business by the Collection Companies.
It allows the Collection Agencies to make comparisons between similar businesses, in terms of bad debts and collection statistics.
This coding is commonly used in the United States.

Type in any notes related to collecting this account. Multiple lines of notes can be entered.
These notes will appear on the Bad Debts Report.

Click the ACCEPT button at the bottom of the screen to accept the Bad Debts record or click CANCEL to abort.

By identifying a customer in the Bad Account file, the program will watch out for the customer when new accounts are opened in Customer Information.
This helps prevent a bad account from defaulting under one name and then changing the company name and trying to register again.
The Bad Account Listing program checks include a match on customer name, address, telephone number, and the principal names.

Click NO if a Bad Account transaction is not required.
Click YES to generate a Bad Account record to the Bad Account Listing file.

Bad Debt Example:
Ace Contracting owes $673.30 and is a Bad Debt. Follow these steps:

Posting the Bad Debt Transaction:
Posting the Bad Debt using Posts Bad Debts results in a credit invoice appearing on the customer's account, which causes the customer's account balance to be zero.

Clearing the Customer Account:
To clear the customer's account, apply the credit invoice W/OFF against the other invoices and finance charges, or use the Clear Unapplied Balances to automatically cross-apply the credits to clear the account.
The Clear Unapplied Balances action is disabled if the Reward Dollars feature has been activated, and the W/OFF credit invoice must then be applied manually using a "zero-dollar" payment in Customer Payments to clear the original invoices.
Any Pending Reward Dollars earned by written-off invoices will automatically be expired when they are paid by the W/OFF credit invoice.

Note: The security by division feature as determined by Divisional Restricted Views does NOT apply to the Bad Debts and Collections utilities, but it does apply to the Bad Account Listing programs.
i.e. An Operator can only add a customer for which he has divisional access, to the Bad Account List.

Additional actions provided by buttons on the Bad Debts screen include:

Topic Keyword: ARBD01
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