Creating invoices in a foreign currency is simple; writing them off as uncollectible takes a few extra steps. Here's how to do it.
If you create an invoice in a foreign currency, and realize later that you need to write it off as uncollectible, the process is a little different than if the invoice is in your business currency. By following these steps, you won’t recognize any gain or loss on the foreign currency exchange while successfully zeroing out your Accounts Receivable balance.
- Navigate to Sales & Payments > Invoices, and select Edit on the invoice you need to write off. Find the exchange rate (underneath the total) and make a note of it; you’ll need it later. Click Save to exit the invoice.
- Select Record a payment, either from the Invoices list or the invoice details page. After choosing the Payment date and Payment method, in the Payment account dropdown, select the “Bad debt clearing account” in your business currency.
Don't have a bad debt clearing account? Follow the steps below.
- Navigate to Accounting > Chart of Accounts, and click Add a New Account in the upper right corner.
- Select the account type "Customer Prepayments and Customer Credits" in the "Liabilities & Credit Cards" section, and name it "Bad debt clearing account."
Make sure you create this account in your business currency!
- When you select an account which is in a different currency than the invoice, the options change, and you are given a field for the exchange rate. Enter the exchange rate from the original invoice (which you found in Step 1 above). The amount in your business currency (in this example, Canadian Dollars) will be the same as on the invoice; make a note of this as well.
- Navigate to Accounting > Transactions; click Add expense. Enter a description and choose the same date as the “payment” you entered in Step 3. The Account should be your bad debt clearing account, and the Amount will be the same as the translated amount (also from Step 3). Categorize the expense to bad debt expense, and click Save.
Don't have a bad debt expense account? Follow the steps below.
- Navigate to Accounting > Chart of Accounts, and click Add a New Account in the upper right corner.
- Select the account type "Operating Expense" in the "Expenses" section, and name it "Bad debt expense."
- Now, navigate to Reports > Account Transactions (General Ledger), and filter for the dates of the transactions. You’ll see that the invoice has been successfully written off:
- the invoice balance in Accounts Receivable is zero
- the sales and bad debt expense offset each other
- there is no gain or loss on foreign exchange
