Write Off Segmentation

When you write off non-collectable debt, you transfer the receivable from a "normal" contract onto one or more write-off contracts. When the debt is transferred to a write-off contract, the distribution code on the "normal" contract is credited (typically an A/R GL account), and the distribution code on the write-off contract is debited.

You will almost always need a write-off contract whose distribution code is the write-off expense. However, you probably don't book all of the write-off amount to a write-off expense account. Why? Because the debt that you're writing off typically contains both revenue and liabilities. At write-off time, you want to book the written off revenue to a write-off expense account and you want to reduce the liabilities (you don't owe the liability if you don't get paid). This means you'll need another contract type for the liabilities. Refer to The Ramifications of Write Offs in the General Ledger for a complete explanation.

Notice the following about the new write-off contract types:

• They have interesting distribution codes. This is because when debt is transferred to these types of contracts, 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.
• Neither needs a bill segment type because the system never creates bill segments for such contracts (they exist only to hold uncollectable debt)
• Even though the debt is not collectable, it still has a debt class. Why? Because the system shows a customer's debt on many inquiries by debt class and it's important to show write-off debt on these queries.
• The combination of Payment Segment Type and Do Not Overpay are important. Refer to The Ramifications of Write Offs in the General Ledger for a complete explanation.