Write Off Bad Debt Using Cash Receipts and an Indirect Expense Account

You can write off a bad debt by using a cash receipt to charge the amount to a Bad Debt indirect Expense account.

With this method, the write-off is absorbed into overhead, instead of affecting only the project responsible for the write-off. If you prorate overhead, this means that all projects receive a slight increase in overhead, spreading the bad debt amount to all projects. If you assign overhead, none of the projects receive an increase in overhead unless you increase the overhead rate. This approach preserves the total amount of billings, so that you can see how much the project would have earned if the client had paid the outstanding invoice.

To write off a bad debt using cash receipts and a Bad Debt Indirect Expense account:

1. Enter a net-zero cash receipt in the Transaction Center.
2. Post the cash receipt in the Transaction Center.