The Aged Receivables Report in Zoho Books is the primary tool for identifying potential bad debts. It groups outstanding invoices by age: 0-30 days, 31-60 days, 61-90 days, and over 90 days. Invoices in the “over 90 days” bucket, particularly those from customers with no recent activity or those who have stopped responding, are candidates for bad debt assessment.
Before writing off, document your collection attempts: emails, phone calls, demand letters, and any legal notices sent. This documentation supports the tax deductibility of the bad debt expense and may be required during an income tax assessment.
The standard method in Zoho Books is to create a credit note for the unpaid invoice amount, selecting “Bad Debt Expense” as the account on the credit note line. Apply the credit note to the open invoice to close it. This keeps the invoice history intact (showing it was raised and then written off), which is important for audit trails and for any future recovery if the customer pays unexpectedly.
The direct write-off method (used above) records the bad debt expense only when you decide to write off a specific invoice. The allowance method estimates bad debts in advance based on historical patterns and creates a “Provision for Bad Debts” contra-asset account. While the allowance method is more conservative and commonly used in larger organisations, Zoho Books supports both. For most SMEs in India, the direct write-off method is simpler and sufficient.
Bad debt in Zoho Books is an amount owed by a customer that is deemed uncollectable. It is recognised as an expense by writing off the corresponding invoice through a credit note or journal entry, reducing both Accounts Receivable and net profit.
When you write off a bad debt in Zoho Books, Accounts Receivable on the Balance Sheet decreases and Bad Debt Expense on the P&L increases by the same amount, reducing your reported net profit for the period.
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