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How do I setup allowance for doubtful accounts?

I already have a Bad Debt setup in Chart of Accounts and within Items but from there where do I go?

Do I simply create a credit memo for the customer and then only apply it if they do indeed pay us?

Thanks

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What I have done for several clients is: create an A/R ty...

What I have done for several clients is: create an A/R type account (sub-account of A/R) in the COA called A/R Doubtful. When a receivable is getting old, I open the invoice and select the A/R Doubtful account instead of the A/R. This effectively moves the transaction out of the main A/R and is easily identifiable. At yearend, if you are 100% certain that payment is not forthcoming, create the credit memo using the Bad Debt item and notify your Accountant that everything in the Bad Debt Account is to be written off.

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Thats a nice way to separate the problem accounts! of cou...

Thats a nice way to separate the problem accounts! of course you still also l have to create the ADR contra-asset account and fill it.
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Thanks - this seems like a clean and easy way to do it. W...

Thanks - this seems like a clean and easy way to do it. What is the ADR contra-asset account?
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Allowance for doubtful accounts, is not customer specific...

Allowance for doubtful accounts, is not customer specific.  It's a reduction of the receivable asset, posted  at year-end, an estimate based on historical data, - so you may create an allowance for say 5% of your total receivables at year-end, because that is the historical statistic for the business. The entry is dr. Bad Debt expense, cr Allowance (current asset).  Then when a specific customer's debt is written off, instead of it going to Bad Debt expense, it goes to the Allowance.  If you don't use an allowance you only write off a customer's debt when you are fairly certain that it is bad. You can do that by creating a Credit Memo (using an item linked to Bad Debt expense) or a Journal Entry if there is no sales tax: dr. Bad Debt expense, cr AR/customer 
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Generally correct but Ashley is likely in Canada, and the...

Generally correct but

Ashley is likely in Canada, and the CRA tax rule/policy is that the "Allowance for Doubtful Receivables" must be based on specifically identified customers & invoices - not just a general overall percentage of AR.  You can still apply percentages to those specific customer & bills based on your estimated likelihood of collection.  I just export an AR aging to spreadsheet and then run down the overdue columns and add a factor column for estimated loss ratio with the extended total.  Basically you have to show that you have tried to make a reasonable assessment based on actual account conditions.

I do use use 'general % allowance' as a way to create a monthly expense to add to ADR.

You only have to make the detailed analysis and list at the year-end to backup the amount on the balance sheet at that time. 

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""Allowance for Doubtful Receivables" must be based on sp...

""Allowance for Doubtful Receivables" must be based on specifically identified customers & invoices"
whether it's an allowance or not, an expense is created, which reduces your taxable income- so why would the tax people be concerned with where the credit goes - direct to AR or to an allowance?
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I assume the rule is there to prevent cos from 'padding'...

I assume the rule is there to prevent cos from 'padding' their bad debt expense by creating unreasonably big allowances.
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so if it is based on specific invoices, why the allowance...

so if it is based on specific invoices, why the allowance? Just send the credit directly to the customer