How To: Write Off Bad Debts

Table Of Contents

Before You Begin
Write Off the Debt
Result
Accounting Effect
Accounting Effect
If you need to write off an unpaid customer invoice, Khaos Control provides two methods:
  1. Using Under/Over Payments (recommended)
  2. Using a Manual Credit Note
The best method for your business will depend on your accounting requirements.
Important
The information in this article is intended as guidance only. We recommend discussing the impact on your accounts with your accountant before proceeding.
Before using either method, you will need to create a Bad Debt nominal account. For guidance, see How To: Create Nominal Accounts.

Before You Begin

We recommend testing this process in your Test system before carrying it out in your Live system.
If payment allocations already exist against the invoice, you may need to Cancel Payment Allocations before continuing.
This method keeps the original invoice on the account history but balances it by creating an allocation transaction. The invoice will no longer appear as outstanding on the Statement tab.

Write Off the Debt

  1. Open a Customer screen (show me how).
  2. Load the required customer.
  3. Open the [ Customer | Detail | Statement ] tab.
  4. Select the outstanding invoice in the Transactions grid.
  5. Right-click and choose Create Allocation Transaction (Under and Over Payments).
  6. Complete the allocation window:
    1. Confirm that you want to create an under/over payment transaction.
    2. Accept any warning message shown. A warning will appear if the value exceeds 10% of the transaction total.
    3. Select the Bad Debt nominal account you created earlier.
    4. Enter the required transaction date.
    5. Choose whether VAT should apply.
    6. Click OK.

Result

The invoice remains on the customer's transaction history but is balanced and no longer appears as outstanding on statements.

Option 2: Using a Manual Credit Note

This method involves three stages:
  1. Create a credit note.
  2. Allocate the credit note against the invoice.
  3. Journal the net value to a Bad Debt nominal account.

Create a Credit Note

  1. Create either a standard Credit Note or an SPLedger Credit Note for the unpaid invoice.
  2. In most cases, the credit note will be a copy of the original invoice, containing the same stock items.
  3. You can use the Copy Sales Order as Credit Note option available from the [ Sales Order | Other Actions menu ].

Accounting Effect

Creating the credit note will:
  • Debit Sales and VAT.
  • Credit Debtors.

Allocate the Credit Note

  1. Open a Customer screen (show me how).
  2. Load the required customer record.
  3. Open the [ Statement ] tab.
  4. Allocate the Credit Note from the Allocate From grid against the original invoice in the Allocate To grid.

Journal the Net Total

After allocating the credit note, move the value from the sales nominal account to your Bad Debt nominal account.
  1. Open an Accounts screen (show me how).
  2. Open the [ Nominal Accounts | Nominal Accounts ] tab.
  3. Locate the sales nominal account(s) affected by the credit note and your Bad Debt nominal account.
  4. Create a journal by double-clicking or dragging the required nominal accounts into the lower grid.
  5. Enter the journal values as follows:
  • Debit Bad Debt Account
  • Credit Sales Nominal Account(s)
  1. Press Ctrl + S or click Save.

Accounting Effect

This journal transfers the value of the written-off debt from Sales to your Bad Debt expense account.

Additional Information

If you do not already have a Bad Debt nominal account, create one and set the System Type to Expense. This allows the value of written-off debts to be reported as an expense within your Profit and Loss account.
Important
The information in this article is intended as guidance only. We recommend confirming the accounting treatment with your accountant to ensure it meets your business requirements.


See Also


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