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gloriadeb204
Level 2

Payment against a bad debt

I just started working for a company that's behind on their workload.

As I create a deposit, there are 2 checks that are payments against a bad debt.

The debt was written off.

Now there's an agreement for paying this debt. 

How do I apply these payments?

Solved
Best answer May 19, 2020

Best Answers
john-pero
Community Champion

Payment against a bad debt

To recapture what was written off you can create a new Invoice for the agreed-upon sum. Then apply the checks to that as they come in.  If the debtor reneges on the agreement you or your successor may again have to write off a balance.  Use the same COA account that was used to write off the debt as (assuming it was done correctly) the original write-off would not have affected prior accrual income. That is why we generally use a special Bad Debt Writeoff expense account. By invoicing against Bad Debt you will possibly have current contra-expense, meaning it is actually income in the expense section of your balance sheet but doing so adjusts the total BDW for each particular debtor.  You could add an income account instead but either way you are posting the amount agreed to as income.  If you are Accrual-based the income is posted today, if Cash, the income posts as you receive each check

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2 Comments
john-pero
Community Champion

Payment against a bad debt

To recapture what was written off you can create a new Invoice for the agreed-upon sum. Then apply the checks to that as they come in.  If the debtor reneges on the agreement you or your successor may again have to write off a balance.  Use the same COA account that was used to write off the debt as (assuming it was done correctly) the original write-off would not have affected prior accrual income. That is why we generally use a special Bad Debt Writeoff expense account. By invoicing against Bad Debt you will possibly have current contra-expense, meaning it is actually income in the expense section of your balance sheet but doing so adjusts the total BDW for each particular debtor.  You could add an income account instead but either way you are posting the amount agreed to as income.  If you are Accrual-based the income is posted today, if Cash, the income posts as you receive each check

View solution in original post

gloriadeb204
Level 2

Payment against a bad debt

Thank you very much!

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