FVS Accounts Solution

USING THE BAD DEBT OPTIONS

Problem:

How does the Bad Debt option work?

Solution:

1. The ‘Create Bad Debt’ option allows you to display unpaid invoices for any given customers and flag them as ‘Bad Debts’. Use this option if you know that an invoice will not be paid.

Bad debts for invoices can be created from unpaid invoice from the current or a previous period. You cannot create bad debts from invoices created in any period beyond the current one (i.e. using invoices created past the end of period date). These will only appear for selection in the Create Bad debt option when their period become current.

Note that an invoice marked as a bad debt can be set back to normal as long as the ‘Write Off’ button has not been clicked.

2. When an invoice is flagged as a bad debt its owing amount will be added to the bad debt total for all invoices marked as bad debt, showing at the bottom of the screen. To write this total debt off, you must click the ‘Write Off Bad Debt’ button. This will create a journal like the following one in the General Ledger:

Post Date	Code	Account	Transfer Details	Credit	Debit
31-Oct-07	296	Bad Debts	Bad Debts		£4,034.50
31-Oct-07	440	Debtors	Bad Debts	£4,034.50

This journal posts the newly created bad debt total (across all customers invoices), to the General ledger. (Bad debts previously created/posted will not be changed.)

This journal will get posted to the General Ledger when the ‘Post Journals’ option is run up to the date shown in the created journal. (i.e. Normally, the ‘Bad debtors’ for a period don’t need to be considered until the financial statements are produced at the end of an accounting period.) They will not show up in the general ledger until payments are posted using the end of period date. When a current accounting period is closed, details of invoices flagged as ‘bad debt’ that have been written off are cleared from the system.

3 Bad debt invoices ‘Written Off’ are excluded from the customer’s statement and any amounts owing shown in the Payment option forms.

Note: To avoid payment of an invoice (e.g. in case of disputed quality of products) a customer should be given a credit note. (Credit notes totals reduce a customer liability.)

4. Use option 2 to list Bad Debt for the current period or all periods. Your accountant will need this report as a summary off bad debt written of within the current period.

Note. Bad debt written off can include invoices from a previous period. The count in your accounts as bad debt written in the period the bad debt is created, not at the invoice date.

5. If a customer who has previously be given a bad debt, repays all or part of the debt later on, you should use option 5 ‘Recover a Bad Debt’ to log this payment. This option creates a journal like the following one:

Post Date	Code	Account	Transfer Details	Credit	Debit
08-Jun-07	298	Bad Debts Recovered	Steve Young	£300.00
08-Jun-07	420	Cash On Hand	Debt Rcvd Steve Young		£300.00

Once again these journals will get posted to the General Ledger when the ‘Post Journals’ option is run up to the date shown in the ‘Recover Bad Debt’ form.

The procedures for handling Bad Debts are in keeping with standards accounting practise.