Processing a customer refund and writing off a bad debt

[stubrady]

Hi,

I have a client who has issued an invoice for $12,000 back on 22/6/2020. This invoice has been included in the client's tax return as taxable income. The customer paid a deposit on 30/6/2021 for $1,985.42, leaving $10,014.58 owing. The customer has since backed out of the deal and our client is going to refund them the $1,985.42. I cannot seem to work out how to process this in Essentials using the 'Create customer return', as it processes it as if it's a customer payment and effectively leaves the amount owing as $8,029.16 (i.e. $12,000.00 - $1,985.42 x 2). The instructions are very confusing and I can't seem to achieve what I'm trying to do (i.e. create an entry to refund the custopmer the $1,985.42 and then write-off the bad debt of $12,000.00). Any guidance would be greatly appreciated. Thanks.

[Tracey_H]

Hi @stubrady 

Thanks for your post. I'm not sure which version of Essentials you're using so I'll give you the basic steps. If you need detailed information please let me know if you're using the original or upgraded version and I'll be happy to help further.

For the deposit amount:

1. create a customer return by recording a negative invoice
2. allocate the customer return to the Bad debts expense account
3. record a refund

For the unpaid balance:

1. create a customer return by recording a negative invoice
2. allocate the customer return to the Bad debts expense account
3. apply the return to the unpaid invoice

Please let me know how you go with this.

If my response has answered your enquiry please click "Accept as Solution" to assist other users find this information.

[stubrady]

Thanks Tracey.

I am using the new version of Essentials, which does not allow me to enter a negative amount on an invoice. I get an error message saying "The total amount cannot be negative or greater than 99,999,999.99".

I also tried to Create Customer Return using a negative amount and received the message "The total customer return amount cannot be negative"

The issues remains unresloved, so any additional assistance would be appreciated.

[Tracey_H]

Hi @stubrady 

The newer Essentials platform doesn't have the Create customer return option and those errors are original Essentials errors, so it sounds like you're using the original platform.

Creating a customer return in the original version records a credit note transaction, as such, you need to enter the amount as a positive.

Please let me know if you need further help.

If my response has answered your enquiry please click "Accept as Solution" to assist other users find this information.

[stubrady]

If I make the amount a positive, it doesn't resolve the issue - it only makes it worse as it effectively means the customer owes less.

What I am trying to do is refund the customer the $1,985.42 they have already paid and then write-off the $12,000.00 invoice as a bad debt.

Could you please provide some instructions?

[Tracey_H · Accepted solution]

Hi @stubrady 

1. Create a customer return for $1,985.42, allocated to the Bad debts account
2.  Go to Process customer return, highlight the return and select Refund to customer, record the refund
3. The amount owing on the invoice will show as $10014.58
4. Create a customer return for the outstanding amount and allocate to Bad debts
5. Go to Process customer return and select Apply to an invoice
   
6. The Sales transaction report shows the original invoice (Invoice), the deposit paid (Receipt), the customer return (Return) for the deposit, the refund (Refund), the customer return for the balance (Return) and the return applied to the invoice (*Credit) leaving a balance owing of $0.00. *The Credit is italicised to indicate it is not included in the balance, it's not a separate transaction just the process used for the return)
7. The Bad debts expense account has been debited the full GST exclusive amount of the invoice. In my example the original invoice has the GST tax code selected so the customer returns are also GST to clear the GST amounts from the GST accounts.

Please let me know if you need further help with this.

If my response has answered your enquiry please click "Accept as Solution" to assist other users find this information.

[stubrady]

That's fantastic Tracey. Thank you so much.

The only issue I have now is - when the customer is paid the refund of $1,945.82, where should this be coded to in the Bank Transactions screen?

[Tracey_H]

Hi @stubrady 

The bank feed refund needs to be matched with the refund transaction recorded in Essentials in the Bank transactions window.

Please let me know if you need further help.

If my response has answered your enquiry please click "Accept as Solution" to assist other users find this information.