Some agencies may choose to transfer written of debt from the "normal" obligation onto one or more write-off obligations. When the debt is transferred to a write-off obligation, the distribution code on the "normal" obligation is credited (typically an A/R GL account), and the distribution code on the write-off obligation is debited.
You will almost always need a write-off obligation whose distribution code is the write-off expense. However, if you don't practice cash accounting, you may have uncollectible debt for liabilities (and you don't owe the liability if you don't get paid). In this case you'll need another obligation type for the liabilities.
The following points highlight interesting information about write-off obligation types:
The distribution code is either an expense or a liability account. This is because when debt is transferred to these types of obligations, the system must debit either an expense account (i.e., write-off expense) or a liability account. It's important to note that in The Ramifications of Write Offs in the General Ledger we explain how this liability account may be overwritten with the liability account that was originally booked.
They do not need a bill segment type because the system never creates bill segments for such obligations (they exist only to hold uncollectable debt)
The adjustment type used to set the offending obligation's current balance equal to its payoff balance is defined on each write-offable obligation type. The adjustment type used to transfer the delinquent debt to the write-off obligation is defined on the write-off obligation type.
An Alternative. If you have a limited number of liability accounts, you may decide to have a separate write-off obligation for each liability account. Doing this would proliferate the number of obligations created at write-off time. However, it would simplify the remittance of payment to the third party if the reversed liability is ever paid.
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