Write Off a Customer Bad Debt

In some cases customers will not pay money owed, and the accounts receivable must be written off to bad debt expense.

There are two methods to writing off bad debts.

Direct Method: Each invoice that is a bad debt is posted to Bad Debt Expense (an expense account) as the bad debt is recognized.
Allowance Method: A percentage of your accounts receivables is written off periodically or at the end of each fiscal year. The amount that is written off depends on the percentage of bad debt you believe your company incurs throughout the year. Normally, you would make a General Journal entry affecting an accounts receivable (used as a contra-asset) account titled "Allowance for Doubtful Accounts" and Bad Debt Expense (an expense account). Then, each invoice is written off to Allowance for Doubtful Accounts as the bad debt is recognized.

To write off an invoice(s) whether partially paid or not paid at all in Accounts Receivable as a bad debt, follow the procedure below.

Determine the method you will use to write off bad debts.
Identify the customer and invoice number to be written off as a bad debt.
From the Tasks menu, select Receive Money. Sage 50 displays the Receipts window.
Enter or select the customer ID associated with the invoices you want to write off as bad debts. To display a list of existing customers, type ? in this field, or select the Lookup button.

Sage 50 displays the outstanding invoices that are due.
Enter a check/reference number that will help identify the write off (for example, WO-001).
In the Cash Account list, enter or select a Bad Debt expense account or an Allowance for Doubtful Accounts account. This will create a debit to that account.

Note: If you have the Hide General Ledger Accounts global option activated, Sage 50 will not display the Bad Debt expense account in this window. You will see only the current list of cash accounts. To use the Bad Debt expense account here, select the Journal button and change it in the Accounting Behind the Screens window.
On the Apply to Invoices tab, select the Pay check box next to the invoices you want to write off as bad debts. This will credit the Accounts Receivable account that was originally associated with the invoice.

Warning! If the Hide General Ledger Accounts global option is NOT activated, whatever the last used account was in the Cash Account field will continue to default again until it is changed, even after the Receive Money window is closed and reopened. If you do not change it back to your normal cash account, all Receipt transactions after the bad debt write off will continue to debit the Bad Debt Expense account or Allowance for Doubtful Accounts account.

Save the receipt to record the write off and clear the customer balance.

Write Off a Customer Bad Debt

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