Bad Debts

This support note is suitable for :

• MYOB Accounting
• MYOB Premier

Introduction

When you decide to write off a bad debt, you need to reflect this in your MYOB company file. This support note explains how to do this so that the customer's outstanding balance is removed, your expenses are correctly updated and any CST liability related to the sale is adjusted.

How are bad debts recorded in MYOB?

Bad debts are a reversal of the original sale, but the transaction is allocated to a bad debts expense account.

Setting up your Accounts List to record a bad debt

Creating a Bad Debts expense account is the only preparation needed for recording bad debts. To do this:

1. Go to the Accounts command centre and click Account List.
2. Select the Expense tab and click New.
3. Give the account a unique number that suits your account list.
4. Name the account Bad Debts.
5. Click OK.

How is a bad debt applied to a customer?

A bad debt is applied to a customer's account by first creating a credit note (GST Adjustment Note). This bad debt Adjustment Note is then applied to the outstanding invoice(s).

Step 1 - Creating the bad debt Adjustment Note

Go to Sales and click Enter Sales.

1. Select the Customer and enter the transaction details including the Invoice Number, Date and Memo. Use the Memo field to record the purpose of the transaction.
2. Click the Layout button along the bottom of the sales entry screen. Choose the Service layout and click OK.
3. Enter an appropriate description such as Bad debt.
4. Select the Bad Debts expense account in the Acc# field. When you do, you will receive a warning message that says that the account used to allocate a sale is usually an income account. Disregard this message and click OK.
5. In the Amount field, enter a negative value equal to the bad debt amount.
6. Apply the relevant CST tax code. You may need to reference the original invoice(s) to determine which GST code to use. (for HK version, GST tax is not applicable)
7. Click Record.

As this will affect your CST reporting, you may need to forward a copy of this Adjustment Note on to the customer.

The window below shows the creation of a bad debt Adjustment Note. Please note the negative amount.

Step 2 - Applying the bad debt Adjustment Note

The bad debt Adjustment Note is applied to the customer's account by using the Returns & Credits tab of the Sales Register.

1. Go to the Sales command centre, click Sales Register and click the Returns and Credits tab.
2. Highlight the bad debt Adjustment Note then click the Apply to Sale button.
3. In the Settle Returns and Credits window, in the Amount Applied column enter the amount for you wish to apply (write-off) for each invoice listed.
4. Click Record.

The window below shows the bad debt Adjustment Note being applied to two invoices.

How does a bad debt affect the GST?

Cash reporting

Using the method described above, a bad debt won't affect the CST where the CST is reported on a cash basis. This is because CST collected is only reported once the payment has been received from the customer. Since the customer never paid the invoice, no CST would have been reported.