How do I write off a Bad Debt?

Writing off bad debts is crucial in maintaining accurate financial records. If you have determined that a debt is not recoverable, Scribe Accounts allows you to handle this efficiently by marking the invoice as paid and recording the write-off as an expense. Here’s a step-by-step guide on how to process a bad debt.

A true bad debt write off records the original invoice as a receipt/income and then the subsequent write off as a payment/expense. If this is the approach you wish to use, follow the process below.  

Step 1: Mark the Invoice as Paid

First, you need to convert the invoice to show it as paid to ensure it no longer appears as outstanding.

1. Navigate to Transactions → Sales Invoices.
2. Locate the invoice associated with the bad debt.
3. Click the three little dots → Convert to Receipt and convert in full. 
4. In the details, reference that this change is due to a bad debt write-off rather than an actual payment received. This could be noted in the notes section on the receipt.

Step 2: Record the Bad Debt as an Expense

Next, create a payment entry to record the written-off amount as a bad debt expense in your accounts.

1. Navigate to Transactions → Payments.
2. Click on ‘Add Record’ to create a new payment entry.
3. In the payment record, enter the amount that corresponds to the bad debt.
4. Code this payment to a bad debt expense code. If you do not have a specific code for bad debts, you may need to create one in the setup menu or consider where you would like to show the expense. 
5. Reference both the receipt (from step 1) and the original invoice number in the payment record for clear traceability.

Step 3: Ensure No Impact on Bank Balances

As this transaction does not involve an actual movement of cash, it’s crucial to ensure that your bank balances are unaffected.

• The receipt linked to the invoice and the payment will net off to not affect the bank reconciliation. Tick both transactions off under Bank → Reconcile. 

Step 4: Review and Confirm

Review the transactions to ensure everything is recorded correctly:

• Check that the invoice no longer shows as outstanding.
• Ensure the bad debt expense is reflected in your financial reports.