Roger,
The conventional accounting procedure for bad debts is to have a contra sub-
account to the accounts receivable usually labelled "Allowance for Bad
Debts" as Adrien indicated earlier. The total of this account sums into the
Account Receivable account, i.e. it is a child account. It is called a
contra account because the entries which increase its value are credits
(debits increase the balance of an asset account).
The write off procedure is then
Debit Credit
Expense:Bad Debts
$100
Assets:Accounts Receivable:Allowancefor Bad Debts
$100
If you don't use formal accounting labels and create the transaction from
the Allowance for Bad Debts register the Debit column will be labelled
Increase and the Credit column Decrease in that register.
Most businesses who operate on credit will not know what their bad debts
actually are until after the end of the accounting period. It is a normal
practice to estimate the bad debts carry out a transaction for the estimate
as above (labelling it as an estimate) so that the accounts reflect the
financial position accurately. Adjustments to this estimate, normally small,
are then applied when the actual bad debt data is available. There are
various methods for estimating bad debts ( allowance, aging, % of sales etc)
and you should consult your accountant for an appropriate method for your
business.
The other part of the above process occurs when a debt is actually declared
bad with no prospect of recovery of the amount. Here you have to "write off"
the bad debts i.e. decrease the Accounts Receivable. As you already have an
allowance for bad debts in place which has been expensed, actual
uncollectable debts are written off against the Allowance for Bad Debts
account as follows:
Debit Credit
Assets:AccountsReceivable:Allowance for Bad Debts $50
Assets:Accounts Receivable
$50
As Gnucash does not appear have a method for direct writeoffs to the Bad
Debts expense account from Accounts Receivable perhaps you could create the
above two transactions (for the same amount) to perform a direct write off.
AFAIK there should be no problem creating the Allowance for Bad Debts
account and I have tested that it sums into the Accounts Receivable. What is
less certain is how the above methodology would affect the Business features
reports based on Accounts Receivable as it was not a part of the Business
features as implemented in GnuCash and I haven't been able to test it.
Derek may be able to comment on that.
David Cousens
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David Cousens
--
Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html
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