How to write off a sales invoice to bad debt

There may be times when you need to write off a customer invoice because they haven’t paid it. This could be because the customer’s company has gone into liquidation or due to a dispute. You can write off your customer’s invoice by posting a credit note to your Bad Debts nominal ledger account. This offsets the bad debt against your profit for the current financial year.

If you use the Standard VAT Scheme, you may also qualify for bad debt relief which means you can reclaim the VAT you’ve already paid to Revenue. If you use the Cash Basis Scheme, VAT calculates based on the payments you receive or make. As the customer hasn’t paid you, there’s no VAT to reclaim.

Bad debt relief conditions

There are certain conditions you must meet before you can reclaim the VAT.

For more information about these conditions and whether you can reclaim bad debt, please contact Revenue or visit their website www.revenue.ie

Check your bad debt nominal ledger account

Before you can create a credit note using the Bad Debts nominal ledger account, you must check it’s visible for sales.

  1. Go to Settings, then Business Settings, then click Chart of Accounts.
  2. In the Search for a code or name box, enter 8100.
  3. Click the Bad Debts nominal ledger account.
  4. In the Visibility section, select the Sales – Invoice / Credit, Product / Services / Customer defaults check box.
  5. Click Save.

Write off a sales invoice – Invoice Basis

  1. Go to Sales, then click Quick Entries.
  2. Click New Quick Entry, then enter the following information:
Type * Click Cr Note.
Date * Enter the date you want to use for the write off.
Customer * Click the relevant customer.
Reference * Enter a reference of your choice, for example, Bad debt.
Ledger Account* Click Bad Debts (8100).
Details If required, enter any additional details.
Net Enter the gross value of the invoice you want to write off. As there is no VAT on the credit note, this ensures that the whole value is written off.
VAT Rate Click No VAT.

Note: The credit note for bad debt write off doesn’t appear on the VAT Return. If you qualify for bad debt relief, you need to follow the steps in the To reclaim VAT – Invoice Basis section.
VAT 0.00

*These details are compulsory.

  1. Click Save.

You’ve successfully recorded a credit against the Bad Debts nominal ledger account. To clear the outstanding debt, you must allocate it to the invoice.

Write off a sales invoice – Cash Basis

  1. Go to Sales, then click Quick Entries.
  2. Click New Quick Entry, then enter the following information:
Type * Click Cr Note.
Date * Enter the date you want to use for the write off.
Customer * Click the relevant customer.
Reference * Enter a reference of your choice, for example, Bad debt.
Ledger Account* Click Bad Debts (8100).
Details If required, enter any additional details.
Net Enter the net amount of the invoice you want to write off.
VAT Rate Choose the relevant VAT rate.

Note: This must be the same VAT rate as the original invoice. If it’s not, you can’t allocate the credit note to the invoice.
VAT Enter the VAT amount.

*These details are compulsory.

  1. Click Save.

You’ve successfully recorded the credit note against the Bad Debts nominal ledger account. To clear the outstanding debt, you must allocate it to the invoice.

Write off a CIS invoice

To write off an invoice that was used for CIS, the process is slightly different.

  1. Go to Sales, then Sales Invoices.

  2. Open the CIS invoice you want to write off and select Add credit note.

  3. Enter the following information:

    Customer * Enter the relevant customer.
    Credit Date * Enter the date you want to use for the write off.
    Description * If required, enter any additional details.
    Ledger Account* Ensure the Ledger Account is the same CIS code as the original invoice.
    Price/Rate Enter the amount of the invoice you want to write off.
    VAT Rate Choose the relevant VAT rate.

    Note: This must be the same VAT rate as the original invoice. If it’s not, you can’t allocate the credit note to the invoice.
    VAT Enter the VAT amount.

  4. Select Save.

  5. Go to Adjustments, then select Journals and choose New Journal.

  6. Enter an appropriate reference, choose the date that you want to use for the write off and enter an optional description.

  7. In Ledger Account, select the CIS Ledger Account you used for the Invoice and Credit Note. In the Credit column enter the amount you want to write off.

  8. On the next line, select the Bad Debts Ledger Account and in the Debit column enter the amount that you want to write off.

  9. Select Save.

Reclaim VAT – Invoice Basis

To reclaim VAT, you need to post a journal to move the VAT value from the Bad Debts nominal ledger account to the VAT on Purchases nominal ledger account. The VAT then appears on your VAT Return, which reduces your liability to Revenue..

You must ensure you meet the necessary conditions before you can reclaim the VAT. If you’re not sure whether you meet the conditions, or how much you can reclaim, please contact Revenue.
  1. Go to Journals, then click New Journal.
  2. Enter the Reference and Date.
  3. If required, add any additional details to the Description field.
  4. Enter the relevant information to reclaim the VAT, for example:
Ledger Account* Details Debit Credit Include on VAT Return?
Bad Debts (8100) VAT reclaim 0.00 Reclaim value Leave clear
VAT on Purchases (2201) VAT reclaim Reclaim value 0.00 Select the check box
  1. Click Save.