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:
Account | Debit | Credit |
Customer | 24.00 | |
Sales | 20.00 | |
VAT | 4.00 | |
Cost of Sales | 10.00 | |
Material Stock | 10.00 |
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
