Overview
- Write off a bad debt by creating a credit note against the relevant invoice. This is just one way to account for bad debts.
- We recommend you ask your accountant or bookkeeper for the best method for your organisation.
How it works
- The method you use to write off a bad debt will depend on your GST registration status and how you want the transactions to be recorded in your reports.
- If you’re on the Invoice basis for GST, you could apply a credit note to the outstanding invoice. Code the credit note to a specific bad debts account code.
- If you’re on the Payments basis for GST, you may wish to code the credit note to the same account code and tax rate as the original invoice. To record the sale and bad debts expense, enter a manual journal using the No GST tax rate.
- Both methods will have a net zero effect on your reports and GST Return.
Write off a bad debt
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- Find the invoice that you want to write off.
- If you’re using new invoicing, click the menu icon and select Create and apply credit. In classic invoicing, click Invoice Options, then select Add Credit Note.
- In the Account field, select the same account code as the original invoice or select your bad debts account.
4. Ensure the date, tax rate and credited amount are correct.
5. Click Approve.
Recovering written off bad debts
If you later receive payment (in part or full) for a bad debt you’ve written off, add a receive money transaction to record the payment recovered.
- In the Account field, use the same account you selected in your credit note.
- In the Tax Rate field, select the appropriate tax rate if you claimed GST when you originally wrote off the debt.
- If you posted a manual journal to record the bad debt, you’ll need to reverse the bad debts journal for the amount recovered.
WARNING: You should consider the tax implications when choosing an account. Talk to your accountant or bookkeeper if you need assistance.
