Writing off Bad Debt

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

The following information and process demonstrates the best procedure for writing off bad debt in IRIS 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 the software you need to enter the details using a journal document input form, debiting the applicable expense nominal and VAT nominal (if required - please seek clarification from your establishment/organisation's financial advisors if you are unsure about VAT) and crediting the relevant Sales Ledger nominal.

The following scenario is used to demonstrate the process to record written off debt in IRIS Financials. A sales invoice for £120.00 has been posted, which has not been paid. All reasonable efforts to recover the debt have been exhausted, so it needs to be written off. The sales invoice is made up of £100.00 income and £20.00 VAT. Both values need to be reversed to reduce the income to the accounts and also to reclaim the VAT (where applicable).

Writing off bad debt consists of the following:

Selecting the Required Document Input Form

Recording the Bad Debt to be Written Off

Allocating the Written Off Bad Debt Document to the Sales Invoice

Selecting the Required Document Input Form

1. Select Documents, then select Document Input from the menu.
   
2. The Document Input window is displayed. To select the document type, select Drill (...) in Document type. Double-select to select JRNL - Journal from the Select a document type dialog.
   
   
3. Next, select Drill (...) in Input form to select the document input form required for the type of payment you are recording, then double-select to select PSF Journal from the Select an input form dialog.
   
   
4. The Date defaults to the date that you are entering the information, i.e. today's date. The date should be the same date as the date on which the debt is being written off. To change the date, select the Date drop-down arrow and select the required date from the calendar. Alternatively, you can select the up-down buttons, or overwrite the date using a DD Month YYYY format, for example, 25 January 2021.
   
5. The Period defaults to the current accounting period. The document period needs to be the accounting period in which the debt is to be written off. If the required accounting period is now closed and no longer available, select the next open accounting period by selecting Drill (...) in Period, then double-select to select the required period from the Select a period dialog.
   
   
6. Select OK to confirm your selections.
   

Recording the Bad Debt to be Written Off

1. The PSFJournal document input form is displayed populated with the details entered in the Document Input dialog.
   
2. The details of the invoice to be written off need to be entered to reverse the transactions on the sales invoice from the Sales Ledger Control nominal. Double-select in Nominal, then double-select to select the nominal to which the sales invoice transaction was originally posted from the Select a nominal dialog.
   If the sales invoice contained more than one transaction that were coded to different nominals, then the total value of the transactions coded to each nominal need to be entered on the PSFJournal document input form on individual rows. To insert a new item row, select in Userfield 3 on the current row, then press the Tab key, or select INSERT ROW.
3. Next, select the account to which the sales invoice transaction was originally posted. Double-select in Account, then double-select to select the required account from the Select account dialog.
   
4. Next, enter the total amount as a minus value for the transaction including VAT in Value, for example, -120.00, then enter 0.00 in User Value (do not enter any currency symbols i.e. £, $, etc.)
   
5. Next, if the sales invoice transaction had a VAT rate applied, the same VAT rate must be applied to the PSFJournal transaction row. Double-select in Tax Type, then double-select to select the required VAT rate from the Select VATRATES key dialog.
   
6. Enter a description to help identify the purpose of the transaction in Description.
   
7. Next, you need to enter transaction details for the bad debt as an expense on a new transaction row. To create a new transaction row, select in Userfield 3, then press the Tab key, or select INSERT ROW.
   If you insert a transaction row that is not required, select anywhere in the transaction row to be removed, then select DELETE ROW.
8. Select the Bad Debt Write Off nominal, double-select in Nominal, then double-select to select 9900 - Bad Debt Write Off from the Select a nominal dialog.
   
9. Next, select the account to which bad debt is written off. Double-select in Account, then double-select to select the required account from the Select account dialog.
   
10. Next, enter the net amount for the transaction (excluding VAT) in Value, for example 100.00, then enter 0.00 in User Value (do not enter any currency symbols i.e. £, $, etc.) If the original transaction has a VAT rate applied, then in the write off nominal transaction row, double-select in Tax Type, then double-select to select the required VAT rate from the Select VATRATES key dialog.
    
11. Enter a description to help identify the purpose of the write off transaction in Description.
    
12. Finally, if VAT was applicable on the invoice being written off, you may be able to reclaim the VAT. You need to enter the details of the VAT amount to the PSFJournal document input form. To create a new transaction row, select in Userfield 3, then press the Tab key, or select INSERT ROW.
    
13. Next, double-select in Nominal, then double-select to select 5300 - Sales VAT (Output) from the Select a nominal dialog to ensure that VAT value is displayed on your establishment/organisation's next VAT return.
    
14. The current open VAT period in which the document date is related is automatically populated in Account.
    
15. Next, enter the net amount for the transaction (excluding VAT) in Value, for example, 20.00, then enter 0.00 in User Value (do not enter any currency symbols i.e. £, $, etc.) If the original transaction has a VAT rate applied, then in the write off nominal transaction row, double-select in Tax Type, then double-select to select the required VAT rate from the Select VATRATES key dialog.
    
16. Enter a description to help identify the purpose of the write off transaction VAT line in Description.
    
    If the amounts entered in Value do not balance to zero (0) then the Document Doesn't Balance to Zero Please Balance document to Post message is displayed in red in the bottom left-hand corner of the form and you are unable to post the document until the values balance zero (0). To correct the error, check that the amounts entered in the Value lines for the nominal and the nominal total the minus amount of the original transaction. If these are different you need to make sure that the correct individual amounts and that all items of the payment have been entered. When the Document Balance is 0.00 the Document Doesn't Balance to Zero Please Balance document to Post message is removed.
    
17. When you have entered all the required details for the bad debt write off, select ALLOCATE, then press F5 or select POST to post the document.
    

Allocating the Written Off Bad Debt Document to the Sales Invoice

1. The Allocation window is displayed. Select the Sales Invoice that is being written off from the right-hand side document list, then drag the document onto the allocation balance line of the document to which it is to be allocated in the left-hand side panel.If you select an transaction from the right-hand side panel to be allocated with the document that you do not want to allocate with the document, then the transaction line can be removed from the left-hand side panel. Select the transaction(s) you no longer want to allocate from the left-hand side panel, select REMOVE, then select SELECTED ITEMS.
   
2. The document to be allocated is displayed under the document to which it is to be allocated in the left-hand side panel. If the documents balance to zero (0) then Allocate is automatically selected. If the documents do not balance to zero (0), select the additional documents required for the allocation until the documents to be allocated balance to zero (0).
   
3. To confirm the allocation, select SAVE.
   
4. The Show Allocated Items window is displayed. Select Yes to view the allocated items in a Detail Enquiry window, or select No to return to the Allocation window.