Bad Debt

Tam Bellingham
Tam Bellingham Member Posts: 1 Novice Member Novice Member
edited August 2020 in Accounts Hosted
Write of BAD debt Cash basis

I have to write off all bad (unrecoverable debt) now my accountant has said to reverse the transaction which does not work. I have ended up writing an adjustment note for the full amount (We are GST registered). It is a lot of money and when doing the BAS it has added a massive income to the business. This can't be correct as we didn't actually receive the money. My steps
1. Created an expense account Bad Debt
2. Created an adjustment note for the full amount inc gst to the Bad debt expense account
3. I used a GST Free code for the tax rate as i had to put one in (Accountant could not help with this as he doesn't know reckon) should it be bas excluded?
4. I applied the credit to the invoice.

Is this all correct as i feel his total G1 on his BAS is huge now (this is first time working with BAS)

I can't find anything on the internet to help so hoping someone here can please

Comments

  • Unknown
    edited August 2020
    This content has been removed.
  • Kris_Williams
    Kris_Williams Member Posts: 3,680 Reckon Accounts Hosted Elite Expert Reckon Accounts Hosted Expert
    edited August 2020
    If the original invoice had GST so should the adjusting credit, bad debt tax code would be NCG
  • Bruce
    Bruce Member Posts: 442 Professional Partner Professional Partner
    edited August 2020
    Your original comment says "write off bad debt, cash basis".   

    I assume that this means your client pays their GST on a cash basis.   If this is the case the writing off of the bad debt has no impact on your GST related cash flows.   The GST hasn't been remitted to the tax office and the income has not been reported in in G1 on the BAS.

    Just do what Kris has described above, apply the adjusting credit to the original invoice and it should all be square.   Your error is in step 3 above, you should use the GST code NCG, not FRE
  • Unknown
    edited August 2020
    This content has been removed.
  • Cheryl Medley
    Cheryl Medley Member Posts: 140 Reckoner Reckoner
    edited August 2020
    I use Reckon Hosted and write bad debts off this way:
    Use: Bad Debts Expense Account
    Do: General Journal Entry
    1. Account: Bad Debts - put total amount into the Debit column. Use NCF in Tax column -  (that way there is no GST included)
    2. Account: Accounts Receivable - put total amount into the Credit column. Then the name of the customer over in customers name column.
    3. Go to Payments received. Bring up the customer - you will see a credit to them. Used the credit amount to write of the amount owing.
    My daughter/accountant is a partner in our business and she does it this way too.
    Hope you get a solution for your method. Nothing worse than having a BAS amount you can't jump over to pay.

  • Kris_Williams
    Kris_Williams Member Posts: 3,680 Reckon Accounts Hosted Elite Expert Reckon Accounts Hosted Expert
    edited August 2020
    That won’t work because you’re not reversing the GST on the original invoice. Tax code should be NCG. Journal or adjustment note both work but tax code is definitely wrong, that’s why the GST on BAS is over the top
  • Bruce
    Bruce Member Posts: 442 Professional Partner Professional Partner
    edited August 2020
    Cheryl Your logic is wrong You haven’t been paid $x which comprises two items - your fee and the GST levied on it. Therefore your bad debt needs to write back BOTH of these items, so the NCG code must be used. Your method means that you overstate your GST liability and understate your profit
  • Cheryl Medley
    Cheryl Medley Member Posts: 140 Reckoner Reckoner
    edited August 2020
    Actually, it does. I've been doing it for years and I have never had to pay the GST on any of the Bad Debts. But I'll stand corrected to more professional people if you feel there is a need to do things differently. Cheers
  • Bruce
    Bruce Member Posts: 442 Professional Partner Professional Partner
    edited August 2020
    My note wasn't as clear as it might have been.  Using your methodology, of you do your GST on a cash basis you will not have PAID too much GST however your GST/Tax Payable account line will overstate your liability.

    However you method will still understate your profit.

    As an example on a $10 sale
    Original transaction shows Cr Fees 10, Cr GST/Tax Payable 1, Dr Accounts Receivable 11

    You reversal is Dr Fees 11, Cr Accounts receivable 11

    So you are now showing a net $1 reduction in fees (and profit) and a $1 increase in GST (but you don't pay this if you are reporting on a cash basis.) 
  • Kris_Williams
    Kris_Williams Member Posts: 3,680 Reckon Accounts Hosted Elite Expert Reckon Accounts Hosted Expert
    edited August 2020
    That’s wrong, you definitely need to use NCG tax code on Bad debts
  • Bruce
    Bruce Member Posts: 442 Professional Partner Professional Partner
    edited August 2020
    Kris
    I agree you must use NCG.  I was trying to demonstrate what Cheryl's journal was doing.   
  • Unknown
    edited August 2020
    This content has been removed.
  • Unknown
    edited August 2020
    This content has been removed.
  • Kris_Williams
    Kris_Williams Member Posts: 3,680 Reckon Accounts Hosted Elite Expert Reckon Accounts Hosted Expert
    edited August 2020
    Over the top - huge - whichever way you put it means the same