[GNC] Posting a bad debt

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[GNC] Posting a bad debt

rmomxtx
If you create an invoice that later becomes uncollectible, there is no way
to charge it off to a bad debt expense account from within the invoice.
Suggestions?

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Re: [GNC] Posting a bad debt

Justin Haynes
I think you have to pay it from an expense account like Expenses:BadDebt or wherever you want to record that expense.

Sent from my iPhone

> On Apr 9, 2019, at 1:21 PM, <[hidden email]> <[hidden email]> wrote:
>
> If you create an invoice that later becomes uncollectible, there is no way
> to charge it off to a bad debt expense account from within the invoice.
> Suggestions?
>
> _______________________________________________
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Re: [GNC] Posting a bad debt

Adrien Monteleone-2
In reply to this post by rmomxtx
Probably the more formal method would be to create,

Assets:Current Assets:Accounts Receivable:Allowance for Doubtful Accounts

then ‘pay’ the original invoice with that asset account, then move that amount (once determined you definitely won’t collect it) to Expenses:Bad Debt.

'Allowance for Doubtful Accounts' is usually a calculated estimation that later gets written off to expenses at the end of the period, but I don’t see why you can’t use it in this fashion all at once.


Regards,
Adrien

> On Apr 9, 2019, at 1:21 PM, <[hidden email]> <[hidden email]> wrote:
>
> If you create an invoice that later becomes uncollectible, there is no way
> to charge it off to a bad debt expense account from within the invoice.
> Suggestions?

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Re: [GNC] Posting a bad debt

rmomxtx
In reply to this post by Justin Haynes
Justin,

That is the way you would do it by normal accounting rules as I understand
them. However, you can't pay an invoice in GnuCash from an expense account.
The only accounts available in the receive payment window are assets, equity
and liability accounts. No income or expense accounts available therefore
not allowed. I've done it in a round about way but never have been satisfied
with the result. Keep looking for something better.

Thanks,
Roger

-----Original Message-----
From: Justin Haynes <[hidden email]>
Sent: Tuesday, April 9, 2019 1:40 PM
To: [hidden email]
Cc: GnuCash <[hidden email]>
Subject: Re: [GNC] Posting a bad debt

I think you have to pay it from an expense account like Expenses:BadDebt or
wherever you want to record that expense.

Sent from my iPhone

> On Apr 9, 2019, at 1:21 PM, <[hidden email]> <[hidden email]> wrote:
>
> If you create an invoice that later becomes uncollectible, there is no
> way to charge it off to a bad debt expense account from within the
invoice.
> Suggestions?
>
> _______________________________________________
> gnucash-user mailing list
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Re: [GNC] Posting a bad debt

Greg Feneis
In similar fashion, a favorite customer shorted me $0.50 on a timely big
invoice payment.  Rather than hassle them about $0.50, I created another
invoice, but as I was creating the invoice I selected credit memo instead
of invoice.  I made a credit memo for $0.50 for that customer and job.
Then I opened the invoice that was $0.50 short and went to pay that
invoice.  The invoice with the $0.50 due appears as well as the credit memo
for $0.50.  I selected them both and finished the payment.

If you went this way, perhaps you could set the account for the source of
the credit memo to an appropriate expense account?  I'm just a beginner, so
what I've done may not be allowed.




Kind regards,

Greg Feneis




On Tue, Apr 9, 2019 at 1:03 PM <[hidden email]> wrote:

> Justin,
>
> That is the way you would do it by normal accounting rules as I understand
> them. However, you can't pay an invoice in GnuCash from an expense account.
> The only accounts available in the receive payment window are assets,
> equity
> and liability accounts. No income or expense accounts available therefore
> not allowed. I've done it in a round about way but never have been
> satisfied
> with the result. Keep looking for something better.
>
> Thanks,
> Roger
>
> -----Original Message-----
> From: Justin Haynes <[hidden email]>
> Sent: Tuesday, April 9, 2019 1:40 PM
> To: [hidden email]
> Cc: GnuCash <[hidden email]>
> Subject: Re: [GNC] Posting a bad debt
>
> I think you have to pay it from an expense account like Expenses:BadDebt or
> wherever you want to record that expense.
>
> Sent from my iPhone
>
> > On Apr 9, 2019, at 1:21 PM, <[hidden email]> <[hidden email]>
> wrote:
> >
> > If you create an invoice that later becomes uncollectible, there is no
> > way to charge it off to a bad debt expense account from within the
> invoice.
> > Suggestions?
> >
> > _______________________________________________
> > gnucash-user mailing list
> > [hidden email]
> > To update your subscription preferences or to unsubscribe:
> > https://lists.gnucash.org/mailman/listinfo/gnucash-user
> > If you are using Nabble or Gmane, please see
> https://wiki.gnucash.org/wiki/Mailing_Lists for more information.
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Re: [GNC] Posting a bad debt

Adrien Monteleone-2
I tested it, you can’t select expense accounts on credit memo line items either.

It looks like the only method is what I outlined earlier, ‘pay’ with some other asset account, then transfer that amount to Expenses:Bad Debts.

Regards,
Adrien

> On Apr 9, 2019, at 3:21 PM, Greg Feneis <[hidden email]> wrote:
>
> In similar fashion, a favorite customer shorted me $0.50 on a timely big
> invoice payment.  Rather than hassle them about $0.50, I created another
> invoice, but as I was creating the invoice I selected credit memo instead
> of invoice.  I made a credit memo for $0.50 for that customer and job.
> Then I opened the invoice that was $0.50 short and went to pay that
> invoice.  The invoice with the $0.50 due appears as well as the credit memo
> for $0.50.  I selected them both and finished the payment.
>
> If you went this way, perhaps you could set the account for the source of
> the credit memo to an appropriate expense account?  I'm just a beginner, so
> what I've done may not be allowed.
>
>
>
>
> Kind regards,
>
> Greg Feneis
>


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Re: [GNC] Posting a bad debt

Justin Haynes
In reply to this post by Greg Feneis
That’s an interesting idea and it keeps the money moving within the billing and accounts receivable side as Roger had requested.  Now that Roger mentions it, I remember now not seeing expense accounts to pay with.

Roger is this the roundabout way you are doing it now?:  https://www.gnucash.org/docs/v3/C/gnucash-help/busnss-ar-payment1.html#busnss-ar-baddebt <https://www.gnucash.org/docs/v3/C/gnucash-help/busnss-ar-payment1.html#busnss-ar-baddebt>

I suppose there is no way to do it within the invoice other than having a negative line item?  (I have not tried this).  Or a credit memo as Greg said.  


-Justin



> On Apr 9, 2019, at 3:21 PM, Greg Feneis <[hidden email]> wrote:
>
> In similar fashion, a favorite customer shorted me $0.50 on a timely big invoice payment.  Rather than hassle them about $0.50, I created another invoice, but as I was creating the invoice I selected credit memo instead of invoice.  I made a credit memo for $0.50 for that customer and job.  Then I opened the invoice that was $0.50 short and went to pay that invoice.  The invoice with the $0.50 due appears as well as the credit memo for $0.50.  I selected them both and finished the payment.  
>
> If you went this way, perhaps you could set the account for the source of the credit memo to an appropriate expense account?  I'm just a beginner, so what I've done may not be allowed.
>
>
>
>
> Kind regards,
>
> Greg Feneis
>
>
>
> On Tue, Apr 9, 2019 at 1:03 PM <[hidden email] <mailto:[hidden email]>> wrote:
> Justin,
>
> That is the way you would do it by normal accounting rules as I understand
> them. However, you can't pay an invoice in GnuCash from an expense account.
> The only accounts available in the receive payment window are assets, equity
> and liability accounts. No income or expense accounts available therefore
> not allowed. I've done it in a round about way but never have been satisfied
> with the result. Keep looking for something better.
>
> Thanks,
> Roger
>
> -----Original Message-----
> From: Justin Haynes <[hidden email] <mailto:[hidden email]>>
> Sent: Tuesday, April 9, 2019 1:40 PM
> To: [hidden email] <mailto:[hidden email]>
> Cc: GnuCash <[hidden email] <mailto:[hidden email]>>
> Subject: Re: [GNC] Posting a bad debt
>
> I think you have to pay it from an expense account like Expenses:BadDebt or
> wherever you want to record that expense.
>
> Sent from my iPhone
>
> > On Apr 9, 2019, at 1:21 PM, <[hidden email] <mailto:[hidden email]>> <[hidden email] <mailto:[hidden email]>> wrote:
> >
> > If you create an invoice that later becomes uncollectible, there is no
> > way to charge it off to a bad debt expense account from within the
> invoice.
> > Suggestions?
> >
> > _______________________________________________
> > gnucash-user mailing list
> > [hidden email] <mailto:[hidden email]>
> > To update your subscription preferences or to unsubscribe:
> > https://lists.gnucash.org/mailman/listinfo/gnucash-user <https://lists.gnucash.org/mailman/listinfo/gnucash-user>
> > If you are using Nabble or Gmane, please see
> https://wiki.gnucash.org/wiki/Mailing_Lists <https://wiki.gnucash.org/wiki/Mailing_Lists> for more information.
> > -----
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Re: [GNC] Posting a bad debt

Greg Feneis
In reply to this post by Adrien Monteleone-2
Since people are trying to associate a non payment with an expense account,
does not getting paid by a customer actually constitute an expense?

I imagine in business, the big concerns with expenses are tracking where
the revenue that doesn't become profit goes, and (at least in the US)
getting tax deductions for as many deductible expenses as possible to
minimize  tax liability.

As a sole proprietor, I think when I can't collect an invoiced amount,
that's just income I can't receive.  I don't think it's an expense.  It's
not revenue spent on something, and it's not tax deductible, AFAIK.

Sorry, I don't mean to hi-Jack the thread, it's kind of related.




Kind regards,

Greg Feneis <http://www.linkedin.com/in/electromechanical>




On Tue, Apr 9, 2019 at 2:07 PM Adrien Monteleone <
[hidden email]> wrote:

> I tested it, you can’t select expense accounts on credit memo line items
> either.
>
> It looks like the only method is what I outlined earlier, ‘pay’ with some
> other asset account, then transfer that amount to Expenses:Bad Debts.
>
> Regards,
> Adrien
>
> > On Apr 9, 2019, at 3:21 PM, Greg Feneis <[hidden email]> wrote:
> >
> > In similar fashion, a favorite customer shorted me $0.50 on a timely big
> > invoice payment.  Rather than hassle them about $0.50, I created another
> > invoice, but as I was creating the invoice I selected credit memo instead
> > of invoice.  I made a credit memo for $0.50 for that customer and job.
> > Then I opened the invoice that was $0.50 short and went to pay that
> > invoice.  The invoice with the $0.50 due appears as well as the credit
> memo
> > for $0.50.  I selected them both and finished the payment.
> >
> > If you went this way, perhaps you could set the account for the source of
> > the credit memo to an appropriate expense account?  I'm just a beginner,
> so
> > what I've done may not be allowed.
> >
> >
> >
> >
> > Kind regards,
> >
> > Greg Feneis
> >
>
>
> _______________________________________________
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> To update your subscription preferences or to unsubscribe:
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Re: [GNC] Posting a bad debt

Adrien Monteleone-2


> On Apr 9, 2019, at 6:07 PM, Greg Feneis <[hidden email]> wrote:
>
> Since people are trying to associate a non payment with an expense account, does not getting paid by a customer actually constitute an expense?

Generally, yes, it is revenue earned, but needs to be deducted so as not to affect income because it wasn’t actually collected.

Income = Revenue - Expenses (accounting text book definition)

>
> I imagine in business, the big concerns with expenses are tracking where the revenue that doesn't become profit goes, and (at least in the US) getting tax deductions for as many deductible expenses as possible to minimize  tax liability.

Non-collectible receivables are reductions to Income in a similar way that Discounts and Allowances are. One way to do that is via an Expenses:Bad Debt account. (again, generally)

>
> As a sole proprietor, I think when I can't collect an invoiced amount, that's just income I can't receive.  I don't think it's an expense.  It's not revenue spent on something, and it's not tax deductible, AFAIK.  

Depends on your jurisdiction tax laws and the exact legal form of the business.

>
> Sorry, I don't mean to hi-Jack the thread, it's kind of related.  
>
>
>
>
> Kind regards,
>
> Greg Feneis

Certainly, related, but the answer for any specific situation should be given by a competent local CPA. My recommendation was for the generic formal treatment of the situation.

We don’t give actionable tax or accounting advice here, but rather how to accomplish accounting tasks using GnuCash.

Regards,
Adrien


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Re: [GNC] Posting a bad debt

rmomxtx
In reply to this post by Greg Feneis
Greg,

 

When you create an invoice or a credit memo, in the main body of the form where you enter what you are going to sell, the available accounts are asset, liability and income. Still no access to an expense account to charge off bad debts. I face the same problem when a parent wants to pay his child’s tuition in kind, i.e. by services I would otherwise pay for. I would like to show the credit memo as an expense for the service provided but there is no way to do that. I bought a hefty switch for our internal network that way. The family has a nice credit balance and it didn’t touch my cash flow. I added a fixed asset account for the switch and charged the credit note to that account. That would not work for other services, like painting and computer maintenance,

 

The only way I’ve been able to make it work is to create a bad debt income account that will show a negative balance and then move the transaction out of the income account journal to a bad debt expense account by a separate manual transaction outside the invoice module. Seems a bit more convoluted than it needs to be. I have to read my notes on what I decided to do every time I need to do it. Isn’t that often so it isn’t that big a deal but it would be nice to have at least an option to charge off bad debts to a bad debt expense account. The totals come out the same either way and a CPA may tell me that it indeed should be an income account. Just seems like it should be an expense account. Would also be useful to pay for services in kind this way. Came to mind this week because I have a pretty hefty account to write off.

 

You need to do something through the invoice module or the unpaid invoice just hangs there and shows up on your balances. You can’t just do a journal entry in the accounts receivable journal. I think once or twice I just gave up and unposted the invoice, changed the name of the customer to an account I use to save these as you can’t delete them, z Recibo Abierto (open receipt – my system is in Spanish), delete the charges and that makes it go away too but there is no record that Joe Dokes is a non-paying customer and it created a loss. Just drops your accrued income. Same net effect so it is an option.

 

Thanks,

Roger

 

From: Greg Feneis <[hidden email]>
Sent: Tuesday, April 9, 2019 3:21 PM
To: [hidden email]
Cc: Justin Haynes <[hidden email]>; GnuCash <[hidden email]>
Subject: Re: [GNC] Posting a bad debt

 

In similar fashion, a favorite customer shorted me $0.50 on a timely big invoice payment.  Rather than hassle them about $0.50, I created another invoice, but as I was creating the invoice I selected credit memo instead of invoice.  I made a credit memo for $0.50 for that customer and job.  Then I opened the invoice that was $0.50 short and went to pay that invoice.  The invoice with the $0.50 due appears as well as the credit memo for $0.50.  I selected them both and finished the payment.  

 

If you went this way, perhaps you could set the account for the source of the credit memo to an appropriate expense account?  I'm just a beginner, so what I've done may not be allowed.





Kind regards,

Greg Feneis

 

 

 

On Tue, Apr 9, 2019 at 1:03 PM <[hidden email] <mailto:[hidden email]> > wrote:

Justin,

That is the way you would do it by normal accounting rules as I understand
them. However, you can't pay an invoice in GnuCash from an expense account.
The only accounts available in the receive payment window are assets, equity
and liability accounts. No income or expense accounts available therefore
not allowed. I've done it in a round about way but never have been satisfied
with the result. Keep looking for something better.

Thanks,
Roger

-----Original Message-----
From: Justin Haynes <[hidden email] <mailto:[hidden email]> >
Sent: Tuesday, April 9, 2019 1:40 PM
To: [hidden email] <mailto:[hidden email]>
Cc: GnuCash <[hidden email] <mailto:[hidden email]> >
Subject: Re: [GNC] Posting a bad debt

I think you have to pay it from an expense account like Expenses:BadDebt or
wherever you want to record that expense.

Sent from my iPhone

> On Apr 9, 2019, at 1:21 PM, <[hidden email] <mailto:[hidden email]> > <[hidden email] <mailto:[hidden email]> > wrote:
>
> If you create an invoice that later becomes uncollectible, there is no
> way to charge it off to a bad debt expense account from within the
invoice.
> Suggestions?
>
> _______________________________________________
> gnucash-user mailing list
> [hidden email] <mailto:[hidden email]>
> To update your subscription preferences or to unsubscribe:
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Re: [GNC] Posting a bad debt

David Cousens
In reply to this post by rmomxtx
Roger,

The conventional accounting procedure for bad debts is to have a contra sub-
account to the accounts receivable usually labelled "Allowance for Bad
Debts" as Adrien indicated earlier. The total of this account sums into the
Account Receivable account, i.e. it is a child account. It is called a
contra account  because the entries which increase its value are credits
(debits increase the balance of an asset account).

The write off procedure is then
                                                                                       
Debit            Credit
Expense:Bad Debts                                                            
$100
Assets:Accounts Receivable:Allowancefor Bad Debts                                
$100

If you don't use formal accounting labels and create the transaction from
the Allowance for Bad Debts register the Debit column will be labelled
Increase and the Credit column Decrease in that register.

Most businesses who operate on credit will not know what their bad debts
actually are until after the end of the accounting period. It is a normal
practice to estimate the bad debts carry out a transaction for the estimate
as above (labelling it as an estimate) so that the accounts reflect the
financial position accurately. Adjustments to this estimate, normally small,
are then applied when the actual bad debt data is available. There are
various methods for estimating bad debts ( allowance, aging, % of sales etc)
and you should consult your accountant for an appropriate method for your
business.

The other part of the above process occurs when a debt is actually declared
bad with no prospect of recovery of the amount. Here you have to "write off"
the bad debts i.e. decrease the Accounts Receivable. As you already have an
allowance for bad debts in place which has been expensed, actual
uncollectable debts are written off against the Allowance for Bad Debts
account as follows:

                                                                                   
Debit          Credit
Assets:AccountsReceivable:Allowance for Bad Debts         $50
Assets:Accounts Receivable                                                              
$50

As Gnucash does not appear have a method for direct writeoffs to the Bad
Debts expense account from Accounts Receivable perhaps you could create the
above two transactions (for the same amount) to perform a direct write off.
AFAIK there should be no problem creating the Allowance for Bad Debts
account and I have tested that it sums into the Accounts Receivable. What is
less certain is how the above methodology would affect the Business features
reports based on Accounts Receivable as it was not a part of the Business
features as implemented in GnuCash and I haven't been able to test it.
Derek may be able to comment on that.

David Cousens



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Re: [GNC] Posting a bad debt

Adrien Monteleone-2
In reply to this post by rmomxtx
Roger,

You could create a sub-account of A/R something like ‘B2BTrade'. When the client does work for you, you ‘pay’ the bill they send you by crediting the asset, and debiting the relevant expense. When you want to apply this to their A/R balance, then ‘pay’ their invoice from you using that account. You can use a single sub-account or keep separate ones for each business you trade with. You could instead place that account in Liabilities if you prefer. The advantage to making it a sub-account of A/R is to have a roll-up total reflect what is actually owed to you without having to do the math yourself with the liability section. The single account is certainly easier, especially if you don’t do frequent and regular business this way. And if you want to see a B2BTrade balance for any one entity, you can run a report filtering on the Payee Description or Notes/Memos, however you annotated the transaction.

So no need to issue credit memos in this case. Just pay their bill to you with a Trade asset account and then pay your bill to them with that same account. The business features will make the debits and credit work out properly.

Regards,
Adrien

> On Apr 9, 2019, at 6:45 PM, <[hidden email]> <[hidden email]> wrote:
>
> Greg,
>
>
>
> When you create an invoice or a credit memo, in the main body of the form where you enter what you are going to sell, the available accounts are asset, liability and income. Still no access to an expense account to charge off bad debts. I face the same problem when a parent wants to pay his child’s tuition in kind, i.e. by services I would otherwise pay for. I would like to show the credit memo as an expense for the service provided but there is no way to do that. I bought a hefty switch for our internal network that way. The family has a nice credit balance and it didn’t touch my cash flow. I added a fixed asset account for the switch and charged the credit note to that account. That would not work for other services, like painting and computer maintenance,
>
>
>
> The only way I’ve been able to make it work is to create a bad debt income account that will show a negative balance and then move the transaction out of the income account journal to a bad debt expense account by a separate manual transaction outside the invoice module. Seems a bit more convoluted than it needs to be. I have to read my notes on what I decided to do every time I need to do it. Isn’t that often so it isn’t that big a deal but it would be nice to have at least an option to charge off bad debts to a bad debt expense account. The totals come out the same either way and a CPA may tell me that it indeed should be an income account. Just seems like it should be an expense account. Would also be useful to pay for services in kind this way. Came to mind this week because I have a pretty hefty account to write off.
>
>
>
> You need to do something through the invoice module or the unpaid invoice just hangs there and shows up on your balances. You can’t just do a journal entry in the accounts receivable journal. I think once or twice I just gave up and unposted the invoice, changed the name of the customer to an account I use to save these as you can’t delete them, z Recibo Abierto (open receipt – my system is in Spanish), delete the charges and that makes it go away too but there is no record that Joe Dokes is a non-paying customer and it created a loss. Just drops your accrued income. Same net effect so it is an option.
>
>
>
> Thanks,
>
> Roger


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Re: [GNC] Posting a bad debt

Maf. King
In reply to this post by rmomxtx
On Tuesday, 9 April 2019 19:21:16 BST [hidden email] wrote:
> If you create an invoice that later becomes uncollectible, there is no way
> to charge it off to a bad debt expense account from within the invoice.
> Suggestions?
>

Hi,

haven't had to do this for a while (thnakfully!), but ISTR that I got numbers
into expenses:bad Debt like this:

1. pay the invoice using the normal bank account

2. go to the bank register and manually edit the transaction so that the bank
account split pointed to expenses:bad debt.

almost certainly not the formal way to do things, but got where I needed to
be.

HTH,
Maf.




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Re: [GNC] Posting a bad debt

Greg Feneis
In reply to this post by Adrien Monteleone-2
 Revenue is money you have collected.  I don't think an invoiced amount is
revenue until it has been collected. When a payment cannot be collected,
that uncollected payment is not an expense. An expense is revenue spent in
exchange for a good or service.

Kind regards, Greg Feneis
(Galaxy S7)


On Tue, Apr 9, 2019, 16:47 Adrien Monteleone <[hidden email]>
wrote:

>
>
> > On Apr 9, 2019, at 6:07 PM, Greg Feneis <[hidden email]> wrote:
> >
> > Since people are trying to associate a non payment with an expense
> account, does not getting paid by a customer actually constitute an expense?
>
> Generally, yes, it is revenue earned, but needs to be deducted so as not
> to affect income because it wasn’t actually collected.
>
> Income = Revenue - Expenses (accounting text book definition)
>
> >
> > I imagine in business, the big concerns with expenses are tracking where
> the revenue that doesn't become profit goes, and (at least in the US)
> getting tax deductions for as many deductible expenses as possible to
> minimize  tax liability.
>
> Non-collectible receivables are reductions to Income in a similar way that
> Discounts and Allowances are. One way to do that is via an Expenses:Bad
> Debt account. (again, generally)
>
> >
> > As a sole proprietor, I think when I can't collect an invoiced amount,
> that's just income I can't receive.  I don't think it's an expense.  It's
> not revenue spent on something, and it's not tax deductible, AFAIK.
>
> Depends on your jurisdiction tax laws and the exact legal form of the
> business.
>
> >
> > Sorry, I don't mean to hi-Jack the thread, it's kind of related.
> >
> >
> >
> >
> > Kind regards,
> >
> > Greg Feneis
>
> Certainly, related, but the answer for any specific situation should be
> given by a competent local CPA. My recommendation was for the generic
> formal treatment of the situation.
>
> We don’t give actionable tax or accounting advice here, but rather how to
> accomplish accounting tasks using GnuCash.
>
> Regards,
> Adrien
>
>
> _______________________________________________
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Re: [GNC] Posting a bad debt

rmomxtx
In reply to this post by rmomxtx
Adrian,

 

This option makes the most sense to me in terms of accounting principles.
Only one problem, I set that account up as a sub of accounts receivable (in
Spanish for: Activo Diferido) but it does not show up in the list of
accounts in the receive payment window. You have to have an accounts
receivable asset account for the invoice module to work. That account does
appear in the dropdown list in the top right corner of the receive payments
window.  I think this list is called "post in" in English, contabilizar en
in Spanish. In the post window, you can select that account as well from a
similar dropdown list called "contabilizar en cuenta," I think "Post in
account" in English. I'm using version 1.6.18. Perhaps later versions allow
you to receive a payment to accounts receivable asset accounts.

 

Thanks,

Roger

 

Message: 5

Date: Tue, 9 Apr 2019 14:18:55 -0500

From: Adrien Monteleone <[hidden email]
<mailto:[hidden email]> >

To: GnuCash <[hidden email] <mailto:[hidden email]> >

Subject: Re: [GNC] Posting a bad debt

Message-ID: <[hidden email]
<mailto:[hidden email]> >

Content-Type: text/plain;             charset=utf-8

 

Probably the more formal method would be to create,

 

Assets:Current Assets:Accounts Receivable:Allowance for Doubtful Accounts

 

then ?pay? the original invoice with that asset account, then move that
amount (once determined you definitely won?t collect it) to Expenses:Bad
Debt.

 

'Allowance for Doubtful Accounts' is usually a calculated estimation that
later gets written off to expenses at the end of the period, but I don?t see
why you can?t use it in this fashion all at once.

 

 

Regards,

Adrien

 

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Re: [GNC] Posting a bad debt

rmomxtx
In reply to this post by rmomxtx
Greg,

 

You’re not hijacking the thread. Good question. Whether a bad debt is a simple loss of income or an expense depends on your method of accounting, cash or accrual. If the latter, the sale is counted as income the day you create the invoice. By the former, it isn’t income until it is paid. It is not uncommon to call a bad debt an expense. At least this is my understanding from my experience and what I studied in college. That was back in the late 60’s so what do I know? 😉

 

Roger

 

Message: 6

Date: Tue, 9 Apr 2019 16:07:18 -0700

From: Greg Feneis <[hidden email] <mailto:[hidden email]> >

To: Adrien Monteleone <[hidden email] <mailto:[hidden email]> >

Cc: GnuCash <[hidden email] <mailto:[hidden email]> >

Subject: Re: [GNC] Posting a bad debt

Message-ID:

               <[hidden email] <mailto:[hidden email]> >

Content-Type: text/plain; charset="UTF-8"

 

Since people are trying to associate a non payment with an expense account, does not getting paid by a customer actually constitute an expense?

 

I imagine in business, the big concerns with expenses are tracking where the revenue that doesn't become profit goes, and (at least in the US) getting tax deductions for as many deductible expenses as possible to minimize  tax liability.

 

As a sole proprietor, I think when I can't collect an invoiced amount, that's just income I can't receive.  I don't think it's an expense.  It's not revenue spent on something, and it's not tax deductible, AFAIK.

 

Sorry, I don't mean to hi-Jack the thread, it's kind of related.

 

 

 

 

Kind regards,

 

Greg Feneis <http://www.linkedin.com/in/electromechanical

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Re: [GNC] Posting a bad debt

rmomxtx
In reply to this post by rmomxtx
David,

 

Excellent explanation of the standard accounting practice for handling bad
debts. I saved it. As you note, the problem is the limits of the invoice
module in GnuCash. I did create an income contra account for bad debts with
the idea of paying the invoice from that account and later entering a
transaction to move it to the bad debt expense account. A customer got a
case of the guilts and asked how much she owed after I had charged it off. I
received her payment direct to a cash account (dr) and a credit to this bad
debt income account. That works but I don't feel I have a handle on it yet,
that it is the best practice. Might be a useful feature/fix to add to the
program in the future.

 

Thanks,

Roger

 

Message: 9

Date: Tue, 9 Apr 2019 18:59:16 -0500 (CDT)

From: David Cousens <[hidden email]
<mailto:[hidden email]> >

To: [hidden email] <mailto:[hidden email]>

Subject: Re: [GNC] Posting a bad debt

Message-ID: <[hidden email]
<mailto:[hidden email]> >

Content-Type: text/plain; charset=us-ascii

 

Roger,

 

The conventional accounting procedure for bad debts is to have a contra sub-

account to the accounts receivable usually labelled "Allowance for Bad

Debts" as Adrien indicated earlier. The total of this account sums into the

Account Receivable account, i.e. it is a child account. It is called a

contra account  because the entries which increase its value are credits

(debits increase the balance of an asset account).

 

David Cousens

(Chose not to copy the entire post as it makes the thread very long and the
original is available in the earlier email. If I did wrong, someone will let
me know.)

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Re: [GNC] Posting a bad debt

Adrien Monteleone-2
In reply to this post by Greg Feneis
At this point I’ll simply suggest referencing an Accounting textbook and/or speaking to a CPA. I’m not getting into a debate about definitions of revenue vs. income and how to treat bad debts in *your* books. As I noted, I’m not dispensing accounting advice. I’m trying to help, best I can, with how to accomplish a task using GnuCash.

Regards,
Adrien

> On Apr 10, 2019, at 9:50 AM, Greg Feneis <[hidden email]> wrote:
>
>  Revenue is money you have collected.  I don't think an invoiced amount is revenue until it has been collected. When a payment cannot be collected, that uncollected payment is not an expense. An expense is revenue spent in exchange for a good or service.
>
> Kind regards, Greg Feneis
> (Galaxy S7)
>    
>


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Re: [GNC] Posting a bad debt

Adrien Monteleone-2
In reply to this post by rmomxtx
Roger,

Be certain to set that sub-account as *type* `asset` not as *type* `accounts receivable`. There can be only one account with the type `accounts receivable`, and that one already exists. (and has the same name) I made the same error myself when I set up my sub-accounts.

You can have regular asset accounts as sub-accounts of the special Accounts Receivable account. They don’t all need to be of *type* `accounts receivable`. That’s what you are trying to accomplish here and then you should see it in the list. I don’t think you have to re-start GnuCash, but go ahead if it still doesn’t show up.

Also, I think you meant version `2.6.18` not `1.6.18`. Even 2.6.18 is a bit dated (the last of the series is 2.6.21) but even back then, you should be able to accomplish this. If there even was a version 1.6.18 it is ancient and probably won’t do much of anything we currently cover here on the list. (I don’t think it had the business features anyway at that point, so that’s probably a typo)

Regards,
Adrien

> On Apr 10, 2019, at 10:15 AM, <[hidden email]> <[hidden email]> wrote:
>
> Adrian,
>  
> This option makes the most sense to me in terms of accounting principles. Only one problem, I set that account up as a sub of accounts receivable (in Spanish for: Activo Diferido) but it does not show up in the list of accounts in the receive payment window. You have to have an accounts receivable asset account for the invoice module to work. That account does appear in the dropdown list in the top right corner of the receive payments window.  I think this list is called “post in” in English, contabilizar en in Spanish. In the post window, you can select that account as well from a similar dropdown list called “contabilizar en cuenta,” I think “Post in account” in English. I’m using version 1.6.18. Perhaps later versions allow you to receive a payment to accounts receivable asset accounts.
>  
> Thanks,
> Roger
>  
> Message: 5
> Date: Tue, 9 Apr 2019 14:18:55 -0500
> From: Adrien Monteleone <[hidden email]>
> To: GnuCash <[hidden email]>
> Subject: Re: [GNC] Posting a bad debt
> Message-ID: <[hidden email]>
> Content-Type: text/plain;             charset=utf-8
>  
> Probably the more formal method would be to create,
>  
> Assets:Current Assets:Accounts Receivable:Allowance for Doubtful Accounts
>  
> then ?pay? the original invoice with that asset account, then move that amount (once determined you definitely won?t collect it) to Expenses:Bad Debt.
>  
> 'Allowance for Doubtful Accounts' is usually a calculated estimation that later gets written off to expenses at the end of the period, but I don?t see why you can?t use it in this fashion all at once.
>  
>  
> Regards,
> Adrien


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Re: [GNC] Posting a bad debt

Adrien Monteleone-2
In reply to this post by rmomxtx
Roger,

That is correct and likely the source of the discrepancy in understanding how to treat bad debts and the meaning of ‘revenue'.

Under accrual accounting, revenue is booked when it is earned, collection is a separate event.

The business features of GnuCash were designed for accrual based accounting.

There is at least one open bug as an RFE to modify them to be useful for cash-basis accounting but I don’t know if anyone has made any effort there.

Regards,
Adrien

> On Apr 10, 2019, at 11:26 AM, <[hidden email]> <[hidden email]> wrote:
>
> Greg,
>
>
>
> You’re not hijacking the thread. Good question. Whether a bad debt is a simple loss of income or an expense depends on your method of accounting, cash or accrual. If the latter, the sale is counted as income the day you create the invoice. By the former, it isn’t income until it is paid. It is not uncommon to call a bad debt an expense. At least this is my understanding from my experience and what I studied in college. That was back in the late 60’s so what do I know? 😉
>
>
>
> Roger


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