Optionally, add an Account ID and Description.In the Account Name section, enter Bad Debt Clearing account.In the Account Type dropdown, select Customer Prepayments and Customer Credits, under Liabilities & Credit Cards.Click Add a new account in the top right corner.Head to Accounting > Chart of Accounts.If you haven't previously created these accounts, go ahead and create them now: We’ll also need a Bad Debt Expense account. You create a clearing account exactly the same way you create any new account in Wave. A clearing account is an account in Wave that functions like a bank account, but doesn't represent a bank account that you have in the real world. In this scenario, the simplest thing to do is use a created bank account, that accountants traditionally refer to as a clearing account. The only way to get rid of the unpaid invoice, and the Accounts Receivable balance, is to mark the invoice as paid. You also want to stop seeing that overdue invoice every time you log in to Wave. ![]() You have not been paid the money, so you want the $300 Accounts Receivable asset to disappear, and to account for the loss against your business income. This is because Wave invoicing is accrual-based. Whenever you create a new invoice in Wave, and approve the draft, it adds to your income, and creates a balance in Accounts Receivable until it is paid. Right now, your bookkeeping includes $300 of income from Decorate Your Life. As this is the case, writing it off is what we recommend. You also need records of actual funds moved by Wave, your payment processor. This is because, since real funds were moved on your business, writing it off best reflects the actual loss you experienced. If you use Wave Payments and someone paid you, but then you refunded the invoice partially or in full, you won’t be able to delete the invoice. Their invoice keeps showing up on your Dashboard as overdue, and deleting it doesn't make sense, since you lost the inventory cost already. They go out of business, and you know you're not going to get paid. Decorate Your Life has gone broke, owing you $300.00 for inventory. Your business, Cottage Furniture, has a customer called Decorate Your Life. Let's start by setting out our bad debt scenario. The direct write-off method accounts for bad debt when an invoiced amount becomes uncollectible. Accounting for bad debt with the direct write-off method This article will take you through the steps to write off an invoice in Wave.įollow the method below to write off an unpaid invoice, or the remaining balance of an invoice which has only been partially paid. Perhaps your customer has gone bankrupt, and is no longer able to pay the remaining balance, or the invoice was paid and later refunded. ![]() When you have finished entering all the items, Post the invoice.There are several reasons why you may want to write off an invoice. Tax (uneditable) - computed tax for this item Subtotal (uneditable) - computed subtotal for this item (less tax) ![]() If you set the item as taxable then this tax table is used to compute the amount of tax. Tax Table (optional) - this is a pop up menu of all the available tax tables. For example, if there is 1 item of $100 with a tax of 5%, if Tax Included is empty then subtotal = $100 and tax = $5, whereas if Tax Included is true, then subtotal = $95 and tax = $5 Tax Included? - has the tax already been included in the unit price? X means yes, a blank field means no. Taxable? - is this item taxable? X means yes, a blank field means no. Quantity - how many of the items you soldĭiscount Type - type of discount, monetary value ($) or percentage (%)ĭiscount How - the discount can be computed after the tax is applied ( >), before the tax is applied( <), or the discount and tax can be applied to the pretax value ( =)ĭiscount (optional) - total discount (in monetary units or percentage, depending on Discount Type. Income Account - which income account is credited with this income Can place Cost Center info here, or use one of the 3 predefined actions, Hours, Material, or Project. If the box is empty you can attach the item to the invoice by first selecting the item row and then clicking in this box.ĭescription (optional) - what the item is calledĪction (optional) - user defined field. Invoiced? - X means the item is attached to this invoice, an empty box means the item is not attached to this invoice.
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