Creating a Journal Entry to Write Off Bad Debt

To accurately write off bad debt for an invoice, you must do the following:

1. Create a journal entry to credit the amount of the unpaid invoice to your accounts receivable account. The balancing debit is to your bad debt expense account, or your allowance for bad debts account if you are using that method.

   If the unpaid invoice includes an amount for VAT (sales tax in the U.K.), bad debt relief can only be claimed on a VAT return when all of the following conditions are met:

   • The sales invoice is more than six months overdue for payment.

   • The invoice has been written off in the business records and accounts.

   • Output VAT on the invoice must have been declared and paid to HMRC on a VAT return.

   • The debt must not have been sold, factored, or paid under a valid legal assignment.

   If all of the above conditions are met, you should split the debit amount. Debit the VAT amount to a sales account and the remaining amount to the Bad Debt expense account.

2. Accept a customer payment of a zero amount to remove the uncollectible invoice amount from open invoices and aging reports. For more information, see Accepting a Customer Payment to Write Off Bad Debt.

To create a journal entry for writing off bad debt:

1. Go to Transactions > Financial > Make Journal Entries.

2. In the Entry No. field, accept the default or enter a different number.

   If journal entries are assigned autogenerated numbers in your account, you cannot change the defaults unless the Allow Override box is checked for Journal. Go to Setup > Company > Auto-Generated Numbers > Document Numbers subtab. For more information, see Set Auto-Generated Numbers.

3. If you use NetSuite OneWorld, select a subsidiary to associate with this journal entry.

   The journal posts to this subsidiary and only entities associated with the subsidiary can view the entry.

   You cannot associate a regular journal entry with more than one subsidiary. For journal entries between two subsidiaries, you must make an intercompany journal entry. For more information, see Journal Entries in OneWorld.

4. If the Multiple Currencies feature is enabled, review the value in the Currency and Exchange Rate fields and edit as necessary.

   If you use NetSuite OneWorld, by default the Currency field displays the base currency of the subsidiary selected in the Subsidiary field.

5. If you have journal approval permission, check the Approved box to approve your journal entry. If you do not check this box, this entry does not post until it is approved.

   The Approved box displays only if the Require Approvals on Journal Entries accounting preference is checked at Setup > Accounting > Accounting Preferences > General subtab. See Require Approvals on Journal Entries Preference.

   The Approved box does not display if you have checked the Journal Entries approval routing accounting preference. This preference enables you to use SuiteFlow to create a custom journal entry approval routing workflow. See Use Journal Entry Approval Routing.

6. Accept or enter a date in the Date field.

7. If you use fiscal periods, you see a Posting Period field.

   The posting period is determined when the journal entry is approved. When you approve a journal entry, you can select a different value than the one initially displayed. You cannot select a closed period. You may be able to select an open and locked period if your role includes the Override Period Restrictions permission.

8. On the Lines subtab:

   1. Enter a credit to A/R:

      • In the Account field, select your Accounts Receivable account.

      • In the Credit field, enter the amount of the invoice for which you do not expect to receive payment.

      • In the Name field, select the name of the customer with whom this invoice is associated.

        Note:

        When you enter the customer name on both the credit and bad debt debit lines, the journal entry is listed twice on the Transactions subtab of the customer record. The customer balance, however, remains outstanding. You should enter the customer name for the debit so the bad debt expense is included in the Customer Profitability report.

      • Enter other information on this line item as necessary.

      • Click Add.

   2. Enter a debit to a bad debt account:

      Tip:

      You can navigate down the lines by pressing the Enter key on your keyboard. You cannot navigate up the lines. When line details are similar, click Copy Previous and then make modifications as required.

      • In the Account field, enter or select your Bad Debt Expense account.

      • In the Debit field, enter the amount of the invoice for which you do not expect to receive payment.

        If the invoice includes a VAT amount, enter the amount of the invoice minus the VAT amount.

      • Enter other information on this line item as necessary.

      • Click Add.

   3. (For invoices with VAT amounts only) Enter a debit for VAT to a sales account:

      • In the Account field, enter or select a sales account.

      • In the Debit field, enter the VAT amount.

      • Enter other information on this line item as necessary.

      • Click Add.

9. Verify that the Out of Balance By Debit and Credit fields are empty, and then click Save.

Related Topics

Bad Debt Overview

Allowance for Bad Debts

Accepting a Customer Payment to Write Off Bad Debt

General Notices