How do I record or 'write-off' bad debt?
The term 'bad debt' refers to 'accounts receivable' that are now unlikely to be paid.
In accountancy terms, when the likelihood that a debt will be paid off is less than 50%, the trustees may take a decision to 'write it off'. You may want to discuss your policy on this with your independent examiner or auditor.
What happens when I 'write off' bad debt?
To write off the debt on the system, ExpensePlus needs to create a reversal to the 'accounts receivable' which doesn't correspond to income received (since there is no corresponding income). In a similar way to how asset depreciation is recorded, a debt 'write-off' will match the value of an outstanding invoice balance with a newly created corresponding expense transaction.
In accordance with your accounting policies, you may choose to record the 'write-off' of bad debt to a single category (for example bad debt) or you may wish to categorise it further (bad debt: residential, commercial, etc.).
'Writing off' debt doesn't reduce the income totals for the category where the original invoice was generated, in the same way that deleting the invoice would. Instead, it records an expenditure line (to be shown in your accounts and SOFA) to account for the 'write-off'. This is the more accurate and is the appropriate way to record a 'write-off'.
How to 'write off' an invoice:
- Within the invoicing module, find the outstanding invoice in question.
- Click the 'Change Invoice Status' button with the circular arrow symbol.
- Select 'write off as bad debt'.
- Allocate to the fund and category of your choice.
If you want to do a partial 'write-off' of debt, you need to open the initial invoice and reduce the value to the amount you want to 'write off'. Then create a duplicate invoice with the same date with the remaining balance. This will allow you to only 'write off' one of the invoices, representing part of the value.
To help you better understand the invoicing module as a whole, please visit the module overview page here.