Handling Bad Debt Write-Offs
Cadzow 2000 contains no special procedure to write off a bad debt as the transaction is simply a credit note. However for book-keeping and analysis purposes it is the usual custom to use a special stock code rather than the original stock code. For example, if you sold 4 chairs and later had to write this off you would not simply credit back the 4 chairs as they are not being returned to stock.
To create the appropriate accounts
To set up credit note reasons
To write off a bad debt
What if the invoice is partly paid and contains a mixture of GST and non-GST items?
If an invoice is completely unpaid then the write-off amount can be taken directly from the items on the invoice. However, if the invoice is partly paid, the write-off amount is less obvious. How do you know which line items the customer has already paid for? Of course this distinction cannot be made. One answer is to apply a proportion.
Suppose you have an invoice for $950.00, comprising $500.00 of GST items and $400.00 of non-GST items ($500.00 + $50.00 GST + $400.00), the customer has paid $200.00 and the remaining $750.00 is to be written off. The proportion of the write-off amount to the total invoice is:
Therefore the GST component is:
and the non-GST component is:
This provides a credit note value of:
If the total is out by one or two cents due to rounding, simply change each line item by one or two cents until the correct value is achieved.
This technique works for both cash-based and accrual-based Business Activity Statement (BAS) reporting. If cash-based, the GST applicable on the original receipt will have been included on a proportional basis already (using this example the GST component of the receipt would be $10.52, ie. 10% of $500 × $200 ÷ $950). The credit note does not contribute any further because it is not a cash entry. If accrual-based, the credit note offsets the GST already included from the invoice on a proportional basis.
Important Note: Cadzow are not providers of GST or tax advice. You must consult your professional advisors for information about dealing with these issues in your environment. This article is designed to discuss the process of entering certain types of transactions into a computer system, using real-world examples.
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