STS Short- Avoid these costly mistakes: Bad debt write offs and sales tax

Hi everyone,
This is short about bad debts and sales tax.
Most businesses have a bad debt write-off policy. This can mean categorizing an outstanding balance as a bad debt after a certain amount of time or after making a certain number of attempts to get paid. Once a debt has been categorized as nonrecoverable, the appropriate adjustments to revenue are made. Another adjustment that should be considered is the adjustments to your sales and use tax return.
If you report sales tax on the accrual basis, sales tax is reported in the period that the transaction occurred, not when you were paid. Theoretically, you can have instances where you have reported and remitted sales tax on sales that will be classified as bad debts due to nonpayment. When adjusting your “Taxable Sales” to account for bad debts, make sure that it is very clear which bad debt(s) is being written off. You should be able to identify the specific transactions, including the customer’s name(s), invoice number(s), invoice date(s) and amount. Having a clear trail of what comprises the adjustment is very important in an audit context.
The criteria for whether a taxing authority gives a business credit for bad debt write-offs can vary form jurisdiction to jurisdiction. Know what is applicable in the jurisdictions where you or your client do business. Make sure to retain all the appropriate documentation relating to the bad debt.
And that is your short for the week.
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[@NinaRossBusiness]

Preech!!! Great tip!

[@salestaxsisters]

Thanks, Nina. Loving our videos and Lucy taking on that dinosaur.