ANSWER ID:9381

Bad Debts often occur where an account sale has been made to a customer, and where payment has been so delayed that you want to simply write off the debt owed as an expense to your business.

Note: A 10% GST rate is used in the examples in this support note.

Task 1 - Set up a new Payment Type

1. Go to the Setup menu and choose Options then click Payment Type.
2. Click Create.
3. Enter the name of new payment type, for example 'Bad Debts' then click OK. See our example below.
   
4. Click Apply then click OK.
5. A message will appear telling you that 'Some of the changes you made will only take effect the next time you open a new transaction window'. Click OK.

 

Task 2 - Set up an Export Group

If you do not use the Accounting Export feature of RetailManager, skip this task.

If you are using the Accounting Export feature of RetailManager, you will need to set up an export group for this new payment type called 'Bad Debts'. This Export Group must be linked to an expense account in the Accounts List of your MYOB accounting software.

For detailed information on creating Export Groups, please refer to the RetailManager User Guide.

 

Task 3 - Create a new Tax Code

[Australia only]

To make sure the transaction reduces the value already entered into the GST account in MYOB, you need a Tax Code called N-T that has a 0% tax rate. This Tax Code denotes the transaction is not reportable on the BAS. If you do not have this Tax Code listed in Admin under Set Tax Codes you will need to create a new one as described below.

[New Zealand only]

To make sure the transaction reduces the value already entered into the GST account in MYOB, you need a Tax Code called N-T that has a 0% tax rate. This Tax Code denotes the transaction is not reportable on the GST Return. If you do not have this Tax Code listed in Admin under Set Tax Codes you will need to create a new one as described below.

1. Go to the Admin menu and choose Set Tax Codes.
2. Click New Tax Code or press F5.
3. Enter the tax code information as below and click Commit or press F10.
   

 

Task 4 - Create a new stock item

1. Go to the Information menu and choose Stock.
2. Create a new item called 'Bad Debts'.
3. Select the option Static Quantity.
4. Set the Cost and RRP tax code to N-T. See our example below.
   

 

Task 5 - Account for the expense

1. Go to the Transaction menu and choose Sales.
2. Enter your Staff number and the Customer number.
3. Enter the Code for the 'Bad Debts' item.
4. In the Tax field, make sure the tax code is N-T and that the price entered into the Sell field is the price Exclusive of Tax.
5. Move to the next line and enter the Bad Debt stock item again. Enter GST in the Tax field.
6. Enter the GST Inclusive price into the Sell field and a negative quantity into the Qty field.
7. In the Payment Details, choose Account.
8. Click Commit. In our example below we will be left with a credit of $10 on the customer's account.
   

 

Task 6 - Paying off the account

1. Go to the Transaction menu and choose Debtor Payments.
2. Enter your Staff number and the Customer number.
3. Pay the -$10 off the first invoice, and $110 off the second invoice.
4. In the Payment Details, use the 'Bad Debts' Payment Type.
5. Click Commit. See our example below.
   

 

Bad Debts and the Accounting Export

When an item is sold on account to a customer, it is recorded in your MYOB accounting software as the following:

DR Trade debtors = $110

CR Income = $100

CR GST collected on sales = $10

Note: This example is based on the accrual method of reporting GST. The value entered against the Trade Debtors account is the GST inclusive value of the invoice and the 10% GST is recorded to the GST Liability account.

 

When you record the bad debt sale, it will appear in your MYOB accounting software as the following:

CR Trade Debtors = $10

DR GST Collected = $10

DR Income = $100 GST tax code

CR Income = $100 N-T tax code

The Trade Debtors and GST Liability accounts are reduced by the 10% GST amount. The Debit and Credit to the Income account reverses the original transaction that was linked to the GST Tax Code so it does not appear in MYOB GST reports. The second line of the transaction records the income you should have received without GST.

 

When you record the Debtor Payment against the Payment Type of Bad Debts, it will appear in your MYOB accounting software as the following:

DR Bad debts expense = $100

CR Trade debtors = $100

The Bad Debts account is debited to recognise the expense while the Trade Debtors account is credited by the amount of the outstanding invoice.