Bad Debts

Bad Debts

Purpose

Once all attempts to recover a customer debt that is past its credit terms have proven unsuccessful it may be considered as a bad debt. This value can be moved from the customer account to an expense account and any GST incurred may be claimed back from the Tax Office. 

Methods

There are 2 methods of achieving this in COSTAR;

  1. Via a Journal Entry or
  2. Via a Credit Note (COSTAR Express stores will have use this method; however, COSTAR Standard can also use this method).

Both methods will require an expense GL (General Ledger) for Bad Debts. The Credit Note method will also require a Special Item setup for Bad Debts and then reflect to the GL for Bad Debts.

Creating a General Ledger for Bad Debts

If you do not have a general ledger account already setup for bad debts, then one needs to be created in G/L Maintenance.

  1. Click on the menu Financials.
  2. Then on the sub menu G/L Maintenance
  1. Enter an Account number (GL) available for Expenses.
  2. Enter a Description of the GL.
  3. Choose the Account Type – Expenses / Subledger – None.
  4. Enter the Branch Number for this store.

Creating a Special Item for Bad Debts

If you do not have an existing Special Item for Bad Debts, then this needs to be created in Special Item Maintenance.
  1. Click on the menu Inventory.
  2. Click on the sub menu Special Item Maintenance.
  1. Click on New from the top Toolbar
  2. Enter the Code you will be using
  3. Enter the Description of the special item
  4. Select the Sales GL for this to report to (This will be the Bad Debts GL)
  5. Click on Back to save the new special item


Writing off a Bad Debt

Below is an example of $1900.65 outstanding for customer JOE BLOGGS across two separate invoices all of which are 90 days overdue.

Via a Journal Entry

    1. Click on Financials
    2. Select Journal Entries
    3. Click New
    4. Enter a Memo that describes the transaction (e.g. Bad Debt write off - Joe Bloggs)
    5. Click on Entries
    1. Click on Assign Next #
    2. Enter in a description (e.g. Bad Debt write off - Joe Bloggs)
    3. Enter in the Date you would like this to reference
    4. Enter the amount you are writing off (negative value)
    5. Enter the Accounts Receivable GL (70000)
    6. Enter the customers Subledger or search using the drop down arrow
    7. In the Apply to Document # field, click on the drop down arrow, then apply to the relevant document/s

Click OK when the full value has been applied. This will separate the documents by Invoice/Repair Order number

Click on the next line below the Invoice/Repair Order documents and this will add the remaining amount to allocate.
    1. The Debit Value should now reflect $1900.65 (negative)
    2. Enter the Bad Debts GL or search by clicking on the drop down arrow
    3. Enter the TaxCd of G 
This will separate the amount you are writing off and the GST component


Notes
Note: When writing off a Bad Debt, you are entitled to receive back the GST value of the transaction, so remember to add the Tax Code "G"

Click Back on the top toolbar

To post the Journal Entry batch that you have created
    1. Select the Post? checkbox for the batch to be posted
    2. Click on Post from the toolbar
    3. Select the accounting period you would like this entry posted into
    4. Click on OK

Via a Credit Note

Because this method uses a Special Item it will have an effect on your Sales Analysis Screen, however, it does not reduce your Sales Value.
    1. Click on Order Entry
    2. Click on Credit Note
    3. Click Add New
    4. Enter the Customer account code or search by clicking the magnifying glass
    5. Enter the Special Item or search using the Magnifying Glass then Other
    6. Enter the Amount to write off inclusive of GST
    7. Click on Sell
    8. Choose the Method as OnAccount
    9. Click on OK
Notes
Note: There may be a password or pin associated with doing a customer Credit Note, consult with the Manager or Owner if you don't know what the password is


    1. Apply the amount to the relevant invoices and select OK

This will reduce your Customers account after the next Day End has been run.

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