Writing off Bad Debt

The nominals and ledgers used in this topic may be different to those in your chart of accounts.

Information in this article is to demonstrate the best procedure for writing off bad debt in PS Financials. It assumes the applicable debt chase procedures have already taken place. If you need to claim back any VAT, please ensure you have sought appropriate financial advice.

To write off a bad debt in IRIS Financials, you will need to enter a journal debiting the applicable expense nominal and VAT nominal (if required - please see clarification from your own financial advisors if you are unsure about VAT) and crediting the relevant Sales Ledger Control nominal.

Currently, there is not a bad debt write off nominal as standard, so you would need to use an existing nominal or create a new one. See Creating a Nominal for details on setting this up.

The Write Off nominal on 7025 is for Fixed Asset Disposals and should not be used for bad debt write offs.

Scenario

The following scenario will be used to demonstrate how best to deal with bad debts. The following graphic displays a sales invoice for £120.00 which has not been paid. All reasonable efforts to recover the debt have been exhausted, so it needs to be written off. The invoice is made up of £100.00 income and £20.00 VAT. Both of these will need to be reversed to reduce the income to your accounts and also to reclaim the VAT (where applicable).

  1. Select Options > Document Input from the PS Accounting menu.
  2. Select Journal from the Document Type drop-down list.
  3. Select PSF Journal from the Input Form drop-down list.
  4. Select the applicable Document Date and Document Period that the debt has been written-off and click the OK button.
  5. The System Journal Input form is displayed. First, you should reverse the invoice from the sales ledger control nominal. To do this please enter the applicable information in the following fields:

    Nominal - Your Sales Ledger Control nominal.
    Account - The applicable sales account.
    Value - Credit the Gross value of the invoice. In our example it is -120.00.
    User Value - Should be zero.
    Tax Type - Outside the Scope. In our example it is X.
    Description - Something to identify the transaction.
    Userfield 1-3 - Leave blank.

  6. You must record the bad debt as an expense to your accounts. The suggested entries are:

    Nominal - Your bad debt nominal . In our example it is LLL6999. You may need to speak to your system administrator to set this up.
    Account - The applicable bad debt account. You may need to speak to your system administrator to set this up.
    Value - Debit the net value of the income on the invoice. In our example it is 100.00.
    User Value - Should be zero.
    Tax Type - Outside the Scope. In our example it is X.
    Description - Something to identify the transaction.
    Userfield 1-3 - Leave blank.
  7. Finally, you may be able to reclaim any VAT (if applicable - speak to your accountant if you are unsure). To do this:

    Nominal - VAT Output nominal. In our example it is LLL9521. This ensures the VAT amount will appear in Box 4 of your next VAT return.
    Account - Your current open VAT period/quarter.
    Value - Debit the value VAT on the invoice (if applicable). In our example it is 20.00.
    User Value - Should be zero.
    Tax Type - Outside the Scope. In our example it is X.
    Description - Something to identify the transaction.
    Userfield 1-3 - Leave blank.
  8. Hold Shift+F5 to post the document.
  9. The Discount and Due Date prompt is displayed. Click the OK button.

    The Account Enquiry window is displayed. The journal will be highlighted green meaning it is in allocating mode.
  10. To allocate the journal, left-click in the grey box next to the sales invoice. The line also turns green. Repeat for any other lines you need to allocate.
  11. Click the Confirm button. The allocated lines will disappear.

The above scenario is designed to assist with the process of writing off bad debt in PS Accounting. If you are unsure of the specific entries required, please speak to your own financial advisors.