Recording a Bad Debt
If you are unable to collect payment for items purchased, we suggest using the direct write-off method.
The basic idea is that there needs to be a credit entry made to the accounts receivable (the customer) to remove the amount that will not be collected, and then a debit entry as an expense to report the amount of the loss to your business.
Note: Main Street cannot give tax advice, only general suggestions. Please seek advice from your tax professional on how to handle expenses and income for your individual situation.
- To open the contact profile, double-click or click the checkbox next to the contact's name, then from the contact list toolbar click
. - From the contact profile toolbar, click the
. - On the Payment form, click
to zero out the account. - Under the Check Payment section, in the Number field, type **BAD DEBT** (Optionally, you can also select an invoice from the Invoice drop-down).
- Click
to save and close the payment form.
After posting a payment to clear the account balance, a contact log entry will automatically be added.
- Click on the
Notes tab of the profile. - Under the Reminder section, reference the bad debt with applicable information.
- Click the Critical, create pop-up checkbox. Each time the profile is opened the Critical Reminder will be displayed and must be acknowledged to continue.
to close the profile.
Before proceeding, ensure that you have created a Bad Debt expense category (or the category your tax adviser recommends).
- From the expense toolbar, click
then select New Expense to open the New Expense form. - In the Pay To and Number field, enter BAD DEBT.
- Enter the Date the account was written off.
- Click
to add a row. - From the Category drop-down menu, select the Bad Debt category.
- In the Memo field, enter the name of the customer, and if applicable the invoice number.
- In the Amount field, enter the amount being written off.
- When finished, click
SAVE to save and close the form.
