[OSGeo Finance] Cancelling Invoices, and restating results

[Ken Tamura]

The proper accounting would be the following:

1.  Accounts Receivable Accrual process:  each quarter assess the collectability of the A/R balance and record a bad debt reserve (debit: bad debt expense;  credit: AR Reserve - contra balance sheet account). This helps to record uncollectable in the period that it is determined uncollectable and reduces income via bad debt expense line item.  The methodology can be in two ways:  (a) A standard percentage of the total AR balance can be applied and therefore it will fluctuate with the AR balance; or (b) A specific invoice can be reserved; which is my recommendation.  

2.  Bad Debt Write off process:  When you determine that the actual invoice will not be collectable, then you write off the invoice by recording a credit to AR (which reduces your AR balance) and debit your AR Reserve.  This will effect only officially write off the balance from your AR accounts, and if you did step one and 'reserved for the uncollectible bad debt', then there will be no income effect since you already took an expense in the period you thought you needed to reserve it.

Please let me know if this make sense.

thanks


Ken Tamura
AEC Division of Autodesk, Inc.
415-547-2114 (w)    415-299-1704 (c)


-----Original Message-----
From: finance-bounces at lists.osgeo.org [mailto:finance-bounces at lists.osgeo.org] On Behalf Of Frank Warmerdam (External)
Sent: Friday, March 06, 2009 9:55 AM
To: Finance List
Subject: [OSGeo Finance] Cancelling Invoices, and restating results

Folks,

I have made an effort this week to generate financial reports for Q4 of 2008.
One concern I had was that we were carrying a bunch of unpaid invoices for GDAL sponsorship (based on mailing out renewal invoices without knowing if the sponsors wanted to renew). I wanted to get these voided in FY2008 if they were not going to be collectable so as to not carry a bunch of bogus income over to 2009.

To that end, we have cancelled one $9000 invoice for sponsorship.  To my horror I discovered this actually altered the Q3 income/expenses rather than appearing as an expense to write down the value of the invoice in Q4 as I had anticipated.  This means that an income and expense report generated for
Q3 has changed, and looks like the attached instead of the report we approved.


Approved:
   http://download.osgeo.org/osgeo/finance/2008Q3_IncomeExpense.html

Revised: (attached)

This is not how I had anticipated things working.  I assumed that if we declare an invoice uncollectable that would count as an expense in the quarter we declare it uncollectable.  Is that not normally how this would be accounted for?  Perhaps voiding the invoice was the wrong approach?

My central concern is that I don't want to be in the position of having to restate and re-approve old financial results ever time we find we can't collect on an invoice (or perhaps if an expense were forgiven as well). And I also don't want to be in a position where our four approved quarterly reports do not add up to our annual results.

Advice is solicited!  Perhaps some of this relates to the mechanics of how things work in Quickbooks online.

Best regards,
-- 
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I set the clouds in motion - turn up   | Frank Warmerdam, warmerdam at pobox.com
light and sound - activate the windows | http://pobox.com/~warmerdam
and watch the world go round - Rush    | Geospatial Programmer for Rent