Bad Debt - Write off a Sales Invoice with VAT recovery

Bad Debt - Write off a Sales Invoice with VAT recovery

This article provides a guide on how to write off a sales invoice as a bad debt with VAT recovery

1. Where sales invoice is to be written off as a bad debt

When originally posted, a sales invoice creates financial movements, debiting the customer account and crediting the sales revenue and VAT accounts. Additionally, the invoice debits cost of sales and credits material stock.

For example:










Cost of Sales


Material Stock


2. To write off the debt:

Add a ‘New Credit Note – From Invoice’ with no return of stock quantity for the original invoice.

This will credit the customer account and allow the VAT to be reclaimed on the next VAT return.

A document note should be entered to indicate that this credit note is in respect of a bad debt.

3. To make provision for the bad debt:

Add a Multi Line Journal to the following accounts:

This may require the designated accounts to be setup within the chart of accounts to account for the bad debt movements

Credit a 'Bad debt' account in the Balance Sheet with the full value of the invoice

Debit a 'Bad debt relief' account in the Balance Sheet for the value of the VAT

Note: This entry is not reported on the VAT return as the VAT was reclaimed on the credit note above

Debit a 'Bad debt expense' account in the Profit & Loss with the net value of the invoice

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