Write off customer bad debt

Use Write Off Bad Debt to clear transactions that will never be paid off by a customer and reclaim the VAT that was charged. You can only do this is a transaction has reached or exceeded the waiting period that is specified by HMRC (The bad debt waiting period was 6 months as at July 2009). You can do this for:

• Transactions that have been provided for.
• Any other outstanding transactions that have exceeded the bad debt waiting period.

• Specify a default bad debt write off account as the default in the Nominal Ledger.
• Enter the statutory Waiting period for recovery of bad debts in the Sales Ledger settings Customer defaults tab. (This was 6 months as of July 2009).

Note: Foreign currency implications on write offs are covered in the topic Provisions for bad debt on foreign currency transactions.

• If VAT is not to be reclaimed:
• The sales account balance is updated with a credit amount with the reference WRITE OFF. The goods amount is set to the gross amount (goods plus VAT) and the VAT amount box is set to zero.
• If items were provided for before write off, the total value is debited to the provision for bad debts account, called Bad Debt Provision (balance sheet). A corresponding entry is made by crediting the sales control account (balance sheet).
• If items were not provided for before write off, the total of the transactions (including VAT) is debited to the bad debts account, called Bad Debt Expense (profit and loss). A corresponding entry is made by crediting the sales control account (balance sheet).
• The VAT table is unaffected.

• If VAT is to be reclaimed:

  If provision was made for the items	If provision was not made for the items
  A credit note is added to the sales account for the total goods and VAT.	A credit note is added to the sales account for outstanding goods and VAT.
  (If an item is part-paid you will have specified the amount of VAT to be reclaimed.)
  The total transactions (including VAT) are debited to the provisions for bad debts account, called Bad Debt Provision (balance sheet).	The total goods value (including VAT) are debited to the bad debts account, called Bad Debt Expense (profit and loss).
  The VAT account (balance sheet) is debited with the value of the VAT.	The VAT account (balance sheet) is debited with the value of the VAT.
  A corresponding credit entry is made in the debtors control account (balance sheet).	A corresponding credit entry is made in the debtors control account (balance sheet).
  A corresponding credit is posted to the bad debts account, called Bad Debt Expense (profit and loss).
  The VAT table is updated with the goods and VAT amounts from the credit note. The VAT rate used is the one stored with the Sales Ledger account.	The VAT table is updated with the goods and VAT amounts from the credit note. The VAT rate used is the one stored with the Sales Ledger account.