Bad Debts
The prescient business
person sells only to customers who are going
to pay. The rest of us sometimes get
stuck with bad debts. In QuickBooks,
several methods can be used to handle these
involuntary discounts. The more complex
case involves the combination of accrual
method accounting (and tax reporting) and
recording of the invoice in a prior tax
year. Two procedures are
enumerated.
In any event, a Bad Debts account is needed. If it does not exist, it must be set up.
If the sale was not taxable, we can use the
Discounts box.
- Bring up
Receive Payments,
and select the customer. This is another case where the
Amount
is left at zero. (Yes, that is the problem.)
- The invoice must be selected for action, by clicking in its line, in the
Payment column. Then click
Discount Info.
- The
Amount of Discount
is the entire balance, and the
Discount Account
is the bad debts account. When these are entered, click
OK.
- With the entire amount discounted, the balance will be zero, so record the form called
Customer Payment by clicking OK.
Taxable sales
preclude the use of this method. It would leave you paying sales tax that you never could collect. A credit memo must be set up, mirroring the invoice, including a sales tax entry. This CM must be handled in the manner described above, ignoring the parts about refunds. Use
Receive Payments
to connect the CM to the invoice, as is described above, for refunds.
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