Write-Off Processing

The Accounts Receivable module supports two types of write-off processing: uncollectable receivables and small balance underpayments.

Uncollectable Receivables

When an invoice (or installment) or some portion of an invoice is judged to be uncollectable, a write-off transaction must be entered to close the uncollectable receivable. This is done by entering a new transaction with the write-off payment type in the Payment Entry and Application Conversation. The uncollectable amount is used as the payment amount and is applied to the uncollectable receivable. Note that a discount cannot be taken when the write-off is applied to an invoice.

In a GST environment, the proportionate amount of GST written-off from an uncollectable receivable can be claimed from the government as a rebate. PST can also be written off using the recoverability field in Reference File category 348. When all of a customer's open items are uncollectable, all unused credit memos must be cleared (through a clearing transaction) against any open invoice, debit memo, or finance charge. All on-account balances must be applied (through an on-account transaction) to any open invoice, debit memo, or finance charge. Then, a write-off payment should be applied to all the remaining open items using the gross pay code.

Small Balance Underpayment

The small balance by which an open item is underpaid can be written off. The amount of this underpayment is subject to a maximum value per open item. This value is contained on the Customer Master File, on a customer-by-customer basis.

Write-offs are performed on the detail screen in the Payment Entry and Application conversation. There are two methods of creating the write-off on this screen.

· You may enter a Y (yes) in the Write-Off Remainder field. The remaining gross amount of the invoice after subtracting the amount applied, the discount amount, and any positive chargeback amount will be written-off. A valid write-off reason code must also be entered.

· You may enter the amount to be written-off in the Write-Off Amount field. A valid write-off reason code must also be entered.

Write-Off Reason Codes

In both cases you must specify a valid reason code for the write-off. Reason codes are defined on Reference File category 350. The reason code is used on Reference File category 302, Account Number Assignment, to define the account to be affected by the write-off. Since you can define multiple reason codes, you have the capability to charge write-offs to multiple accounts by using the reason code on your account assignment record.

In addition, you have the option on Reference File category 350 to specify whether a VAT adjustment should be performed for the specific write-off reason code. If the VAT adjustment flag is 'Y', then the Automatic creation flag must be 'N'. However, this flag will not override the Write-off VAT correction flag set up in Reference File category 307 for the write-off.

Accounting Transactions

The accounting transactions for both the uncollectable receivable write-off and the small balance underpayment write-off are generated in the same way. They consist of a credit to the accounts receivable account of the open item written off and a debit to either a bad debts expense account (if the write-off should appear on the income statement), or an allowance for doubtful accounts account (if the write-off should appear on the balance sheet). The account number that receives the debit is specified for each company/location on Reference File category 302, Account Number Assignment (type 12).

Procedures to Enter and Apply a Write-Off

With the following exceptions, the entry and application of write-offs are the same as the entry and application of checks.

No part of a write-off can be placed on account. Thus, the place on-account processing control field on the Payment Header screen is invalid. Also, F23-End Transaction/On-Account is not allowed.