This article is relevant if you want to write off a NetSuite-based customer receivable but you would like to avoid the use of journal entries.
Background
The unfortunate reality is that businesses that offer their customers payment terms may need to write off amounts due where management assesses the receivable is not going to be paid. NetSuite’s Help document suggests that you write a journal entry to initiate the process.
I am going to offer an alternative. Mainly because I found that I try to avoid using Journal Entries as a matter of practice; the primary reason is that they make it harder to analyze the effects of sub-ledger activity without reading the journal entry memo. In addition, as many NetSuite-based accountants have learned, writing a journal entry to NetSuite control accounts tends to make permanent information elements show on reports. The classic one related to receivables is the “-None-” customer with a zero balance on the aging report.
Note, I have written about this topic before. Readers may want to reference these articles:
- Learn the Pattern to Write Off NetSuite Customer Balances
- Learn the Pattern to Close or Write Off Outstanding Customer Balances
- NetSuite Mass Update with SuiteScript to Write Off Invoices
How to Write Off a NetSuite Accounts Receivable Balance without a Journal Entry
Using NetSuite’s Help document as inspiration, I developed an alternative. Here are the major steps. Click the related images to get a picture of the practice:
- Accept a Payment to the Undeposited Funds Account: use a standard accept payment to the customer account using the Undeposited Funds account. For the check number, use something descriptive such as “Bad Debt March 7, 2020”. This way, when you run a payment report, you will see the Bad Debt payment reference. Note, this technique is using the account clearing method which I often write about.
- Accept a Bank Deposit to Apply Payments: pretend you are going to deposit the funds into the bank. Select the “Bad Debt” payment you applied in the previous step. At this point, NetSuite will Debit Undeposited Funds and Credit AR. The accounts receivable aging will look good. We effectively moved the bad debt problem to Undeposited Funds.
- Use Other Deposits to Target Bad Debt Expense: using the Other Deposits tab, enter a negative value amount for the write-off. Select your general ledger Bad Debt expense account. The Bank Deposit record will now total to zero — meaning, we did not really deposit any funds in the bank account. Save the bank deposit record.
- Confirm GL Impact: view the GL impact to confirm the accounting. In this case, we expect a Debit to Bad Debts expense and a Credit to Undeposited Funds. We have now written off the receivable in a clean manner without using journal entries!
Click the related images to see an example of the practice.
Take the Avoid Journal Entry Challenge
In my NetSuite Systems Integration practice, I lead a team of professionals with both business, accounting, and technology backgrounds. I often challenge our team members to avoid suggesting to our clients to use journal entries in any situation the client faces. Why? I do this because it deepens our team’s understanding of the NetSuite platform, our accounting skills, and it illustrates we think in a more innovative manner.
Thus, I invite you to do the same. The next time you think, “I will just journal entry that concern”, stop and ask yourself, “can I approach this challenge with other built-in records”?
If you found this article meaningful, feel free to receive notifications of new articles as I post them. If you would like to work with a team of NetSuite experts that don’t just have thoughts, but who can actually think, let’s have a conversation.
Marty Zigman
Holding all three official certifications, Marty is regarded as the top NetSuite expert and leads a team of senior professionals at Prolecto Resources, Inc. He is a former Deloitte & Touche CPA and has held CTO roles. For over 30 years, Marty has produced leadership in ERP, CRM and eCommerce business systems. Contact Marty to set up a conversation.
More Posts - Website - Twitter - Facebook - LinkedIn - YouTube
Marty, an even simpler approach is to set-up a payment method mapped to your allowance or bad-debt expense account. Thankfully I don’t use it much, but when I do, it works!
“…but they do. And they’re the ones writing it off.”
-Cosmo Kramer
Hi Chris,
Indeed, your approach works really well if you have a high degree of write-offs. Thank you.
Marty
Is there a way to write off a receipt/payment?
Hello Kim,
Yes, consider that you will need to target your write off GL account. Then craft an invoice with a single line using an item that will point to the GL account. Apply the receipt/payment to that invoice and you are done; the invoice will have been paid and the receipt will be applied.
We often have to do this and all kinds of related matters for our clients. I have written an article on how to apply SuiteScript to the situation.
https://blog.prolecto.com/2019/05/04/get-suitescript-2-0-to-apply-netsuite-credit-memos-to-invoices/
Marty
Hi Marty,
How would bad debt recovery work in the example above. I would assume that you would un-apply the bad debt payment and then apply customer payment. While that solves AR, it leaves you with an unapplied bad debt payment.
Thanks
Drew
Hi Drew,
Once you write off bad debt, should the funds then show up, I would assume the prior period is closed. Thus, I would create a one-time invoice to recognize “bad debt recover revenue”, possibly in the “other income” section of the income statement.
Marty
Hi Marty, I chose your method specifically because I’m attempting to avoid the -No Customer/Project- showing in A/R Aging. However, after using your method and using “Cash Back” to hit the Allowance account, -No Customer/Project- remains.
I have enough users running the A/R aging report to look for balances, that asking them all to run a custom report by default is problematic and will result in discrepancies on reporting.
Sorry, I forgot to mention (and I’m upset I hit “Comment” before checking my message) Allowance entries are made using estimates and are calculated at the beginning of the year, so impacting Bad Debts is inappropriate. I don’t want to have to make a non-Accounts Receivable account to hold the balance, because it will change the Balance Sheet.
Honestly, I’m very confused as to why NetSuite decided that an uncollectable amount should still be considered part of an Accounts Receivable balance.
Alex,
Once you have -No Customer/Project- in your AR aging, you can not get rid of it unless you remove the underlying problem transactions. This often is a challenge for the books are closed.
Marty
Alex,
I discuss allowance accounting in this article:
https://blog.prolecto.com/2018/08/11/close-netsuite-books-quickly-automated-allowance-and-accrual-practices/
Also, the AR account is fundamental in invoice/credit memo processing. Thus, once you deem an account is uncollectible, it’s up to you clear AR. So the allowance article may be a better approach to prepare the credits ahead of time and shape the accounting.
Marty
Hey Marty,
Can you please help in a different scenario? The customer was charged sales tax and they short-paid the invoice claiming they are tax exempt. do you know how to take that tax off the invoice since the prior month is already closed?
Hello Nos,
You will need to produce a Credit Memo with the Tax and then write another invoice without the Tax.
Marty
I am trying to implement Chris’ approach of setting up a payment method that is mapped to an expense account. However, only bank accounts appear to be selectable. Is there something I’m missing?
Hello Mark,
Do you have the “EXPAND ACCOUNT LIST” option On in Accounting Preferences, General, General Ledger?
Marty