Write Off Bad Debt Using Cash Receipts and an Indirect Expense Account
The third method to write off debt is to use a cash receipt to charge the amount to a Bad Debt indirect expense account (you can add this account in the Chart of Accounts Info Center).
Unlike method 1 (negative invoice) and method 2 (cash receipt with direct expense account), using this method, the write-off is absorbed into overhead, instead of affecting only the project responsible for the write-off. If you prorate overhead, all projects have a slight increase in overhead. In this case, you are spreading the additional costs to all projects. If you assign overhead, none of the projects have an increase in overhead unless you increase the specified overhead rate. As in method 2, Vision preserves the total amount of billings, so you can see how much the project would have earned if the client had paid the outstanding invoice.
To write off a bad debt using cash receipts and a Bad Debt Indirect Expense Account, complete the following steps:
- Enter a net-zero cash receipt.
- Post the cash receipt.