Bad Debt
Tam Bellingham
Member Posts: 1 Novice Member
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
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
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Comments
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If the original invoice had GST so should the adjusting credit, bad debt tax code would be NCG0
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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 top0
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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 profit0
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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. Cheers0
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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.)0 -
That’s wrong, you definitely need to use NCG tax code on Bad debts0
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Kris
I agree you must use NCG. I was trying to demonstrate what Cheryl's journal was doing.1 -
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Over the top - huge - whichever way you put it means the same0
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