Accounting for bad debts

When you realise that a debt will not be recovered you need to write it off.  Before you can do this you need to create a Bad Debt expense account in your accounts list.

The simplest way to do this is to create a sale to the customer for the amount owed, but as a negative, and allocate it to the Bad Debts expense account.

Select Sales, General Sale and enter the customer's details.

In the Description field, enter a description of the transaction and allocate it to the Bad Debts expense account.

In the Amount field enter the bad debt amount as a negative number.  

In the Tax Code field enter the same Tax Code that was used in the original sale.

Click Process and Pay.

It doesn't matter what bank account you select at the top because the Customer Payment will be for a zero amount.

Click into the Payment column against the line item for the invoice you have just created, for the negative amount, and also click into the Payment column against the line item(s) for the invoices that haven't been paid.

The Total showing at the bottom should be Zero.

Press Process.