Voiding invoices / Entries for unpaid invoices

Ai2 · ‎December 10, 2018

We have some 2016 invoices that are still unpaid and we would like to void it (we can't contact the customer anymore) but we already closed our 2016 books. Should we leave it open and just make some adjusting entries? If so, what should be the entry?

Please advise. Thanks!

PreciousB · ‎December 10, 2018

Hi there Ai,

Voiding an invoice in a closed period will affect financial statements. We recommend you do not void an invoice that was created in a closed period.

These steps will allow you to leave financials as they were in the previous year, while closing the invoice and reducing income in the current year.

Create a backup of your company file.
Make a note of the customer name, items and amounts on the invoice from the closed period.
Create a credit memo.
Select the same customer, items and amounts in this credit memo as the ones noted in step two - ensuring that the date of the credit memo is in the current period.
Click Save & Close.
The Available Credit window will be displayed.
Select Apply to an invoice and click OK.
Select the invoice from the closed period.
Click Done.
Review financial statements, as necessary.

Let me know if there's anything else I can do for you. Have a great day!

View solution in original post

PreciousB · ‎December 10, 2018

Hi there Ai,

Voiding an invoice in a closed period will affect financial statements. We recommend you do not void an invoice that was created in a closed period.

These steps will allow you to leave financials as they were in the previous year, while closing the invoice and reducing income in the current year.

Create a backup of your company file.
Make a note of the customer name, items and amounts on the invoice from the closed period.
Create a credit memo.
Select the same customer, items and amounts in this credit memo as the ones noted in step two - ensuring that the date of the credit memo is in the current period.
Click Save & Close.
The Available Credit window will be displayed.
Select Apply to an invoice and click OK.
Select the invoice from the closed period.
Click Done.
Review financial statements, as necessary.

Let me know if there's anything else I can do for you. Have a great day!

Ai2 · ‎December 10, 2018

Thank you so much!

Ai2 · ‎December 10, 2018

Please help me with this =)

The company recently purchased a vehicle. We had it financed for 2 years.  Is my entry below correct? Is there any additional entry (not including depreciation entry)?

To set-up:

Vehicle (Fixed Asset) xxx

          Loan Payable (Long-term Liability) xxx

          Check (Down payment to finance company) xxx

To make a payment:

Loan Payable (Long-term Liability) xxx

Interest Expense xxx

         Check (Payable to finance company) xxx

PreciousB · ‎December 10, 2018

Hi @Ai ,
While I can't provide any accounting advice, I want to make sure any technical questions you have about the program are answered. I suggest contacting an accountant to make sure if you have recorded it correctly.

qbteachmt · ‎December 10, 2018

"a JE that does not affect a bank account should not affect a cash basis report"

And that is one of the issues; they show All the time, for financial reporting. On the other hand, this is not seen in Customer or Vendor reporting, because it is not a Customer or Vendor name transaction. In QB, this is Source and Target Names.

Everything I describe, you can test. Also, many older Help topics warn you about JE.

"It is unlikely that Inventory is an issue with a Bad Debt write-off."

That might be true, but is there is Sales Taxes, then the JE will not Reverse the open sale and offset any sales tax condition as a result of the initial sale. Intuit calls it "Bad Debt" but really, it is Write Off uncollected AR, which is the reversal of a Sale. Your Item on the credit memo can link to Bad Debt as expense, but look at your tax form. The IRS calls it Allowances and Refunds as Contra-Accounting, which makes it (negative) Income; I use the name Refund/Write Off.

qbteachmt · ‎December 10, 2018

Customer Transactions for Sales as AR will be honored on Cash Vs Accrual basis reporting. JE are never honored and always reported on both basis. JE do not allow you to use Items, and this is especially a problem if you need to manage inventory. Sales tax is only one of many issues you need to worry about. Even if it is Nontaxable, a JE will not report on the sales tax reports at all. It is not a Sale. Try the reporting yourself, to understand that mess that is being made here. Also, JE to AR doesn't have Terms or properly Age. Yes, it makes a Significant difference using Credit memo vs JE. Try issuing a JE and a refund, then use Credit memo and do it properly.

Let me give you another example:
In the Receive Payment screen, you can use the Discount function, which results in Out of Balance reporting. You should use Credit Memo to clear open AR balances.

You can see Out Of Balance reporting in my attachment.

Malcolm Ziman · ‎December 10, 2018

"JE are never honored and always reported on both basis"
I did a test and established that a JE shows on a cash basis P&L even if a bank account is not used (which I don't think is the right way - a JE that does not affect a bank account should not affect a cash basis report). . Thank you to Teach for highlighting that. So if the poster is on the cash basis, he/she should not use a JE for a bad debt as the Bad Debt will show as an expense, and it is not an expense on the cash basis. On the accrual basis, a JE works. But as Teach says if you are using the QB Sales tax tool, it won't work. It is unlikely that Inventory is an issue with a Bad Debt write-off.

qbteachmt · ‎December 10, 2018

"You might have to go into the customer to apply the credit, but it should be automatic"

There is no Automatic application of a JE for AR. The AR transactions will remind you there is a credit available for open charges, because both Invoice and Credit Memo have Icons on the Ribbon = Tools.

By using JE, you made a brute force accounting entry that is not linked to anything else. You will have to link it by using Receive Payment for that name and leaving the amount as 0. But it is better to avoid JE for AR, sales, sales taxes, and customer activities.

Malcolm Ziman · ‎December 10, 2018

"Select the same customer, items and amounts in this credit memo as the ones noted in step two - ensuring that the date of the credit memo is in the current period." This will reduce sales for the current period, which is not really right. It would be more meaningful to debit a Bad Debts expense. It does not affect the net profit, but it does affect margin%.

Ai2 · ‎December 10, 2018

If I debit a Bad Debts expense, the invoice is still open. I wanna know if there's any way that it wont show up anymore on our A/R.

Malcolm Ziman · ‎December 10, 2018

I would use a Journal entry, debit Bad Debts expense, credit AR, and enter the customer's name in the Name column. Or create an Item where the "Income account" is the Bad debt expense, and use the item in a credit memo to the customer. These both reduce the customer's balance in AR. You might have to go into the customer to apply the credit, but it should be automatic.

Ai2 · ‎December 10, 2018

Thank you so much!

qbteachmt · ‎December 10, 2018

You really want to avoid using JE for AR; the system doesn't manage the reporting for cash vs accrual basis when you use JE and that does not clear sales or reverse sales taxes. AR is affected by Invoice, Statement Charge, Receive Payment, and Credit memo. That JE also didn't allow you to use the Item(s) for reversing that sale.

Malcolm Ziman · ‎December 10, 2018

A JE is fine if thereis no s/tax. Teach is correct about sales tax. So yes if you had sales tax on the invoice and you use QB to calculate sales tax, you might want to do a c/memo.Cash vs accrual makes no difference if you use a c/memo or JE. No items being returned, so inventory is not an issue.

Q2control · ‎July 25, 2019

When I create a credit memo in a period other than the period in which the related invoice was recorded, then on the Aging report it is not netted and each amount shows separately. Is there any way to net them without changing dates so that they both occur in the same period?

Anonymous · ‎July 25, 2019

Thank you for joining in the thread, @Q2control.

I can help share additional details about creating the credit memo.

Netting them on the same period will have the same effect when voiding the invoice. We don't recommend voiding it in a closed period because it'll change your closed financial statement.

I'd recommend contacting your accountant to verify if voiding/changing the credit memo date would be a proper process based on your scenario.

Creating a credit memo and dating it this financial year will show each balance in a separate period but will have a total of zero balance.

Keep me posted if you have additional questions about your credit memo or anything else. I'm here to help however I can.

Bookkeeper8 · ‎January 15, 2024

I have been ordered to use the cash method by the client's CPA. I issued a credit memo for a prior period uncollectible invoice. The sales show up in the cash PL (even though it was 18 months ago). Now the sales are wrong. What counter account do I use to remove the cash sale? I already used bad debt current asset to clear up the invoice. Now I have to make a second entry to remove the bogus sale (because of the cash method). What do y'all think?

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Voiding invoices / Entries for unpaid invoices