Write-Off of Uncollectible Receivables or Bad Debts

Write-Off of Uncollectible Receivables or Bad Debts

Identify the Unpaid Invoice

• Navigate to Sales → Customer Inquiries → Customer Transactions.
• Search and locate the customer invoice that is confirmed to be uncollectible.

Enter a Credit Note to Write Off the Amount

1. Go to Sales → Customer Credit Notes → Enter Credit Note.
2. Select the customer associated with the unpaid invoice.
3. Choose Credit against invoice and select the invoice to be written off.
4. In the item line:
   • Use a non-stock item such as BADDEBT.
   • Enter the same amount as the unpaid balance.
   • Ensure the GL account is set to your Bad Debts Expense account.
5. Submit the credit note.

Allocate the Credit Note to the Invoice

1. Navigate to Sales → Customer Allocations.
2. Select the customer.
3. Allocate the newly created credit note against the original unpaid invoice to clear the outstanding balance.

Add an Audit Comment (Optional)

• You may add a comment to either the invoice or credit note for audit purposes. Example: "Bad debt write-off approved on 10 June 2025 by [Your Name]."

Accounting Impact

Upon posting the credit note, the system will generate a journal entry as follows:

• Debit: Bad Debts Expense
• Credit: Accounts Receivable (Customer)

This ensures that the customer’s receivable balance is cleared, and the expense is reflected in the profit and loss statement.

Optional Setup Notes

• If the BADDEBT non-stock item does not exist:
  • Go to Items → Manage Items and create it as a service item.
  • Link it to the Bad Debts Expense GL account.
• Verify that the Bad Debts Expense account exists under GL → Chart of Accounts.