Bad (Un-collectible) debts can be written off before the end of the year and the uncollected debts can be used to lower your profits. Here is how this process works:
- During the year, you have accounts receivable which you collect...and some receivables you are having trouble collecting.
- At the end of the year, run an Accounts Receivable Aging Report to see who has not paid you for a long time.
- If the customer is no longer active or has stopped paying, you may be able to cut this customer's balance from your total sales, to reduce your income.
- Add up all the bad debts you want to write off. Be sure you really want to write off these debts. If you receive the money from the customer later, you will have to reverse the write-off and declare the payment as income. Review the list with your tax adviser.
