Sage Write Off Help

Portandy

Hi,

We have received a partial payment from the liquidators of a company.

We wrote off the invoices in 2008 and reclaimed the VAT.

What transaction should I do to record the payment and recharge for VAT on this partial payment.

I was thinking DR Bank 1200 & CR Bad Debt 8100 to record the payment, but where does the VAT get involved?

Many thanks for any help you can offer.

Bowdent

You need to treat the dividend as being VAT inclusive and pay that element back to the VAT man.

For example, if you've recieved £1,000 as a dividend from the liquidator, £148.94 of it will be VAT and £851.06 is yours.

Therefore your double entry would be:

Dr Bank account (BS) £1,000
Cr VAT account (BS) (£148.94)
Cr Bad Debt (P&L) (£851.06)

Please leave feedback if this helped / you need further help with it.
Cheers

Poodle

Hi,

If the debt was written off in 2008 should this not be included in turnover as a 'bad debt recovered' ?

Is it correct to net off in 8100 (an expense line) against other possible bad debts for the current year?

Perhaps Steve could clarify the rules for this?

Bowdent

Portandy asked the same question in a sub forum where the main discussion has happened and been resolved.

The original transaction would've originally created a credit in sales, a credit in the VAT account, and a debit in debtors.

Then when they were fairly sure they werent going to receive the funds, they would've written off the debt by: Crediting Debtors, debiting VAT, Debiting a Bad Debt Expense nominal on the P&L.

As they have now received some of that debt, it needs to be treated as a negative bad debt expense. If they were to put it in Sales, they would be double counting it in sales, and hence sales would be overstated - as it was already reported with the original sales transaction.
When you write off a debt, you dont reduce your sales, but include it as an expense to the business.

Hope this clarifies.