Bad Debt Write-Off
   

Writing off bad debt is not something anyone enjoys, but it is necessary to clean up your A/R periodically (at a minimum, once per year). There are two preferred methods for writing off bad debt: the first reduces the sales tax, and the second does not. You will need to decide the appropriate method for the state you pay sales tax in. Ask your accountant! Both methods allow you to reverse the write-off so a future payment could be taken. Make certain that you mark the customer as “Undesirable.”
   

Topics included in this article:

• Method 1: Write-off reducing sales tax

• Reporting for Method 1

• Reversing the Write-Off (Method 1)

• Method 2: Write-off not reducing sales tax

• Reporting for Method 2

• Reversing the Write-Off (Method 2)

  
     

Prerequisites

To write off debt without reducing sales tax, you will need to create a disbursement item for bad debts. Refer to our document on setting up disbursement items before proceeding with the steps for the second method in this article.
  

Method 1: Write-Off Reducing Sales Tax

This method does not allow for tracking of Bad Debt on your G/L. It simply reduces income and sales tax accordingly through the contract.

1. From the Counter System menu, choose Customer Dashboard.
   In Elite, click Tools in the left menu > Customer Dashboard.

   

       

2. Select the customer.

3. Right-click the contract you wish to write off and choose 'Write Off Contract' (must be closed).

   

      

4. You will be prompted to confirm that you really want to write off the contract.

   

      

5. You may need to enter your password and press the Enter key to get through the security measure.

6. Back at the Customer Balance screen, you will see that the contract now has a zero balance.

   

        

Reporting for Method 1

To see the contracts that you have written off, you can run the Transaction Edits Report, which can be accessed in two ways.

1. Program Menu > End of Day Processing > Transaction Edits Report

2. Program Menu > Override Reports > Transaction Edits Report

To access this report in Elite, go to Reports in the right menu > Transaction Edits Report. 
When you click the Transaction Edits Report, you will select the date range. Then in the Grouping drop-down, select “Edit Code.” This list will show all the edit codes on the left side of the screen. One of the codes will be “Edit–Write Off.”

   

Reversing the Write-Off (Method 1)

1. Click Modify Contract within the Counter System. 
   In Elite, click Transactions in the left menu > Modify Contract.

   

2. From the Tools Menu in the top left corner, choose “Set Contract Price.” 

   

       

3. Select “Reset prices to standard pricing.” Press the OK button. 

   

      

4. This will reset the contract to its original pricing, allowing you to accept a payment.

   

        

5. If you have sent the debt to a collection agency and they have sent you a partial payment, instead of choosing “Reset prices,” select “Total with Tax” and enter the amount you have received. Now you can post the payment to the contract as you usually would.

      

Method 2: Write-Off Not Reducing Sales Tax

This method enables the tracking of bad debt in your general ledger (G/L) through the disbursement item, which is typically posted to an income account called Bad Debt Write Off. This method does not affect sales tax.

1. From the Program Menu, select Accounts Receivable Dashboard.
   In Elite, click Accounting in the left menu > Accounts Receivable Dashboard.

   

     

2. Select Account in the Payment Type drop-down.

   

     

3. Select the customer.

4. Choose Make Account Payment > Make Payment.

   

     

      

5. From the Payment Screen, take payment for the amount you are writing off.

6. Select the 'Credit Memo' payment method and click OK.

   

      

7. Is the payment amount correct? Select Yes.

   

       

8. Select the Bad Debt Write Off disbursement item (See the Disbursements How-to Guide for help setting one up if you have not already done so).

        
    

9. Enter any comments you may have and press OK.

    

10. Do you want to automatically apply for this payment? Note: If there is more than one invoice to apply, answer no and manually apply for the payment. If you answer yes, payments will be applied to the oldest invoice first.

11. Now you can pay the appropriate contracts as if you were taking a regular payment.

     

12. Once all contracts have been paid, the Funds Remaining at the bottom of the screen should be zero.

      

13. Press OK to finish.

       

Reporting for Method 2

To see the contracts that you have written off, you can run the Disbursements Report. To access this report in Elite, go to the Reports in the right menu > Disbursements Report.

When you click the Disbursements Report, you will select the date range and generate the report. The report will list all disbursements by type that were made during that date range, including those that were made with the Bad Debt Write Off type you selected in step 8 above.
   

Reversing the Write-Off (Method 2)

This method uses credit disbursements. To learn how to create one or for more information on disbursements, see the article Creating a New Disbursement Item.

1. From the Left Menu in Elite, select Accounting > Account Payments.

   

       

2. Select the customer.
    

3. Choose to Make a Payment.
    

4. From the Payment Screen, refund the negative (-) Payment Amount for the returned check.

    

5. Select a payment method of Credit Memo and click OK. 
    

6. Is the payment correct? Enter Yes.
    

7. Select the Bad Debt Write Off disbursement item.
    

8. Enter any comments you may have and press OK.
    

9. Apply existing credits? Note: If there are multiple payments to apply, answer 'NO' and manually apply the payment. If you answer yes, payments will be applied to the oldest invoice first.
    

10. Now you can un-pay the appropriate contracts by entering a negative number in the paying column.

     

11. If you do not see your contract, it may have already gone to history. Simply click the Historical Button at the bottom of the payment screen and choose the contract.

     

12. Once all contracts have been unpaid, the Funds Remaining at the bottom of the screen should be zero.
     

13. Press OK to finish.
     

14. This will un-pay the contract, allowing you to take payment. If you have sent the debt to a collection agency and they have sent you a partial payment, un-pay the contract by that amount only. Now you can post the payment to the account as you normally would.