NetLoan - Bad Debt Write Off
Bad Debt Write Off
Overview: In cases where the full amount of a loan is to be written off as a Bad Debt Expense, the loan should be modified to adjust the Notes Receivable balance and close out any open invoices.
For partial write-offs, please refer to the Loan Balance Adjustment article.
Prerequisites: Loan modifications must be entered in NetLoan before month-end amortization entries are processed. Additionally, loans must be commenced and have an Initial Balance journal entry generated before they can be modified.
Modification Steps
- Navigate to the loan record and click the "Modify" button.
- On the "Loan Modification" page, select "Adjust Loan Balance" for the "Modification Type."
- Enter the amount listed in the "Loan Balance Before Adjustment" field as a negative value in the "Adjustment Amount" field to bring the loan balance to zero.
- After entering the above step, "Loan Balance After Adjustment" will update to 0.00 to confirm a full write-off.
- The “Loan Adjustment Gain/Loss Account” field automatically populates with the Gain/Loss on Loan Transactions account specified on the Loan Type record. You can change this account on an individual modification as needed by changing the account selected in the “Loan Adjustment Gain/Loss Account” field.
- Click the "Modify Loan" button to process the loan balance adjustment.
- Once the modification has been fully processed, the schedule will update to show one remaining schedule line that adjusts the loan balance to 0.
- Below is an example of the journal entry for the modification, where the Gain/Loss account is debited as specified in the modification record.
Closing out Open A/R
The steps above will effectively write off the remaining balance on the loan as of the date selected. However, there may be open unpaid invoices prior to the date of the write off that need to be considered. The following steps outline the suggested process according to Netsuite (see this article for reference), but client-specific use cases and scenarios should be considered as appropriate.
- Review the customer’s open invoice(s) and determine the amount to be written off as bad debt.
- Navigate to "Transactions" > "Financial" > "Make Journal Entries" to create a journal entry.
- In the journal entry, credit the A/R account assigned to the invoices and debit the preferred Gain/Loss account.
- Create a customer payment to Undeposited Funds and select the journal entry created in the "Credits" tab to apply it.
- Move to the "Apply" tab, select the invoices to write off, or choose "Auto Apply" to write off all open invoices.
- Save the payment, and it will be recorded as a $0 payment.
- The invoice(s) will be updated to "Paid in Full."