This article describes how to write off an invoice marked as 'uncollectible' (see Uncollectible Invoices). When an uncollectible invoice is written off, the previously paid VAT is reclaimed. However, be aware that this is subject to strict conditions, which you can find on the Tax Authorities' website. If in doubt, consult your bookkeeper or accountant.
Preparation
Ensure that there is a general ledger account into which the write-off of uncollectible invoices can be posted. In the following example, we assume a Dutch chart of accounts and we have created account 1350 - Provision for accounts receivable as a Balance sheet account.
We now need to ensure that the package knows to use this account when writing off uncollectible invoices. To do this, we navigate to the Miscellaneous menu - Company Preferences and select account 1350 - Provision for accounts receivable as the Standard Provision for uncollectible debtors account.
Write off uncollectible invoice
It may happen that a customer is unable to pay an invoice, for example because the company has gone bankrupt. In this situation you will ultimately be left with an uncollectible invoice. We have now indicated the invoice (after having received the first reminder) as Uncollectible (See Uncollectible invoices)
Within the package you can handle this situation as follows:
The Tax Authorities require that you must be able to demonstrate that you have done everything possible to collect the amount (if you ultimately want to be able to reclaim the VAT on the uncollectible invoice). Before we can write off the uncollectible invoice and reclaim the VAT, you would also have to have sent the invoice for a second time.
We now select the invoice in question:
Then from the More menu we select the option Uncollectible
You will now be asked for confirmation
Click OK
As you can see, the invoice has now been given the status Uncollectible debited
Now if we want to see which entries have been created, we select from the More menu View journal entries
As you can see, account 4875 - Uncollectible accounts receivable is credited with the invoice amount, account 1350 - Provision for accounts receivable is debited with the net invoice amount and account 1510 - VAT To be claimed High is debited with the VAT Receivable amount.