Q&A of the Month--Write-Off an A/R Invoice

Q. What's the best way to handle an Accounts Receivable invoice that has been outstanding for a long time and which you no longer expect to be paid? In other words, how do you write-off a “bad” A/R?

A. One approach to write off an old A/R invoice—yet maintain a balanced general ledger—is to enter a new A/R invoice in the same accounting year as the “bad” A/R. Use the same Ledger Account, Center, and Division as the original entry except reverse the amount. To document the purpose of this entry, type something like “Write off A/R ####” in the Description field (where “####” is the original invoice number). Also remember that whenever you make changes in a prior accounting year, you must re-create accounting beginning balances (Utilities Create Beginning Balance) and to re-calculate retained earnings (General Input Accounting Calculate Retained Earnings) for each succeeding year.

Note when following this procedure, the original and offsetting invoice can either remain “open,” or are both paid on the date the decision is made to write-off the original A/R.

Other options are also available for handling this tricky transaction. Remember to always consult with your accountant before making changes in a prior accounting period.