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opcaccounting
January 9, 2019
Question

Allowance for Doubtful accounts

  • January 9, 2019
  • 1 reply
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I am trying to post a journal entry to two AR accounts and I am receiving an error that I cannt post to two AR accounts.  We had to set up and ADA account that had to be listed as an AR account so we can get to the net AR balance.  Here are the transactions:

 

A journal entry was made for potential write offs:

Bad Debt                                            xxx

Allowance for doubtful accounts            xxx

 

The entry we are trying to post once the account is realized to be uncollectable would be:

Allowance for doubtful accounts   xxx

Account receiveable                                xxx

 

My issue is that since both these accounts are AR accounts, I am unable to record this JE.  Is there anyway to work around this? 

1 reply

john-pero
john-pero
January 9, 2019

I am going to start with the procedure of writing off bad debts as here https://quickbooks.intuit.com/community/Help-Articles/How-to-write-off-bad-debt/m-p/187834

 

and then a discussion of A/R sub accounts for designated allowance for bad debts. https://community.intuit.com/questions/1631735-how-do-i-setup-allowance-for-doubtful-accounts

 

It seems to me that your workaround is to use a customer credit memo to bad debt to "pay" the noncollectable invoice 

 

Step 4: Create a credit memo for the debt

To create a credit memo:

  1. Select the Plus icon (+) on the Toolbar.

  2. Select the customer from the Customer drop-down list.

  3. In the Product/Service field, select the Bad Debt item you created.
  4. Enter the Amount of the unpaid invoices as a positive number.
  5. In the Memo field, enter Bad Debt.

  6. Select Save and close.

You have a generic overall allowance for Bad Debt as an Expense in your first journal. Now you wish to write off a specific customer's invoice or portion thereof. That is not time for journal entry but to apply the credit memo

 

The credit memo is created for the debt. The next step is to apply the credit memo to write off the bad debt.

Step 5: Apply the credit memo

To use the credit memo to write off the bad debt:

  1. Select the Plus icon (+) on the Toolbar.

  2. Under Customers, choose Receive Payment.

  3. Select the customer from the Customer drop-down list.

  4. In the Outstanding Transactions section, select the invoices to write off.
  5. Under Credits, select the credit memo you created.
  6. Make sure the Amount received is 0.00.

  7. Select Save and close.

The uncollectible receivable now appears on your Profit and Loss report under  the Bad Debts expense account.

qbteachmt
qbteachmt
January 9, 2019

You Do Not Use AR for Allowances.

 

You also need to avoid JE when Names are involved; do  not use them for AR, AP, QB Inventory, Sales, QB Sales Taxes, or QB Payroll.

 

You write off something you don't intend to collect, using Credit Memo, for AR.

 

You Offset Open AR for Allowance by making one entry into Other Current Asset, one account that will run negative, without Names. The JE is Debit an Income account for Allowances/Write Offs and Credit Other Current Asset for "Allowance for Bad Debt." Example: You always want to see 20% of open AR as likely not going to be collected, so Manage the matching balance of that Other Current Asset against AR Aging Summary. The offset is Generic, not By Name. If you know it By Name, you might as well state that you are Writing it Off, not "providing an allowance just in case."

B
Britt-Post
September 27, 2019

Yeah, finally someone says this!

I started managing a QBO installation where the A/R Reserve (the contra-asset account) is set up as an "Accounts Receivable" type of account. I can't adjust the balance of the A/R Reserve without tying it to a customer. I don't want to tie it to a customer, I just want to change the balance.   

So I figured that I should change the type of the AR Reserve account from "Accounts Receivable" to "Other Current Liabilities" but it's hard to find any confirmation in the knowledge base that this is OK.  I take it that you have found it is OK, yes?


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