Bad Debt Write-offs

To provide a proper audit trail, enter a credit memo into Sales Entry and Editing (Task 1 in AR). This procedure will adjust both AR and the General Ledger after everything is posted and the month is closed. 

NOTE: A separate credit memo may be entered for each invoice on the customer’s account & each credit memo may be applied to each invoice.  For example, a customer owes you 5 separate invoices. 5 separate credit memos may be entered for each invoice and each credit memo applied (field 15) to each invoice.  OR one credit memo may be entered for the whole amount being written off to the customer.  For example, a customer owes you 5 separate invoices, but only one credit memo is entered for the whole amount.  If this method is used, after the credit memo is posted it will need to be applied to the separate invoices in A/R Cash/receipts entry & editing (Task 2).

Create the credit memo:

• Accounts Receivable (Module 2)
  • Sales Entry & Editing (Task 1)
    • Enter New Sales Record (Sub-task 1)
      • ​The important/necessary fields are listed below, in bold, with the number of characters in parenthesis.
      • First Screen:
        • ​01. Invoice # :_____(6) Numeric. Assign an invoice number that is out of the range of the system generated invoice or CM numbers.                         
        • 02. Inv date:______(6) Enter a date in the current month
        • 03. Due date:
        • 04. Division#:__(2)                         
        • 05. Sale type:_(1)  Use transaction type of  "3" - credit memo                
        • 06. Customer # :______(6) 
        • 07. Salesman# :                        
        • 08. Sale amt:                      
        • 09. Other amt:_______(8)  Enter the taxable and non-taxable sales amount plus state tax and freight amounts (if applicable)of the bad debt write-off in this field.             
        • 12. Freight amt :________(8) If the freight amount is included in #9 above, don’t break the freight amount out leave this field blank. 
        • 15. Apply to:______(6) Enter the number of the invoice that is being written off.  If the "credit" is to be applied to several invoices, leave this field "0" and apply the newly created credit memo to the invoices through Cash Receipts Entry & Editing (Task 2), entering the new Credit Memo # being created in this step in field 11 and the invoices being written off on the second screen (Note: there will be a system generated debit memo and credit memo automatically created, which will be cleared off the customer’s account when the program:  “Clear Paid Inv.'s from A/R Open” is ran).    If the invoice number entered is not an open invoice, the following message appears:  Apply-to NOT in open file, credit will NOT show on account.
        • 16. St Tax flag: _(1)  Enter a nontaxable tax flag from the pop up table.   
        • 20. Department:__(2)
        • 21. Tax zone A :____(4) A non-taxable zone may be entered here. If tax zones aren’t used on your system, just leave this field blank.
        • 22.    zone A $ :_____zero
        • 23. Tax zone B :
        • 24.    zone B $ :
        • 25. Tax zone C :
        • 26.    zone C $ :
        • 27. Tax state:
      • ​Second Screen:
        • ​Enter the General Ledger account that is used for Bad Debt Write-offs.  Note: if amounts were entered in fields 10 (State Tax) or 12 (Freight Amt), the amounts will not appear on the second screen for distribution, only the actual sales amount will appear….this is the amount that will be written off to Bad Debt, whereas the sales tax &  freight will be taken care of automatically. 
        • Print an edit list (Sub-task 4) to verify everything is correct.
        • Post the bad debt credit memo (Sub-task 5). Save posting & update daily balancing spreadsheet.

Example:  

Original invoice: Total Invoice Amount:  $78.49.  Taxable sale: $54.00, Non-Taxable sale: $8.00, State Sales Tax: $3.99, Freight 12.50

The original invoice GL affect:

                                                Debit                           Credit             

Accounts Receivable         78.49

Sales Tax Payable                                                         3.99

Freight                                                                           12.50

Sales                                                                                 8.00

Sales                                                                              54.00

The Credit Memo GL affect:

Accounts Receivable                                                  78.49

Bad Debt                                 78.49

NOTE:  If you need to issue a credit memo for a Finance Charge, the G/L account number would be the revenue or miscellaneous income account for finance charges, for example, 655-95-01 or 655-00-01.