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Write off a foreign currency invoice

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If you create an invoice in a foreign currency and realize later that you need to write it off as uncollectible, there is a specific process to follow, different from writing off an invoice in your business currency. Follow all three steps below to zero out your Accounts Receivable balance, while avoiding any foreign currency exchange gain or loss.

If the invoice is in your business currency, see Write off an invoice.

Create bad debt accounts

Record a payment

Create a transaction

Step 1: Create bad debt accounts

To successfully write off a foreign currency invoice, you will need a Bad Debt Clearing account, as well as a Bad Debt Expense account, both in your business currency.

To create a Bad Debt Clearing account:

  1. Log in to your account from a web browser at waveapps.com.
  2. On the left side menu, select Accounting > Chart of Accounts.
  3. Click Add a New Account in the top right corner.
  4. In the Account Type drop-down, select Customer Prepayments and Customer Credits, then name the account Bad Debt Clearing.
  5. Click Save.

To create a Bad Debt Expense account:

  1. On the left side menu, select Accounting > Chart of Accounts.
  2. Click Add a New Account in the top right corner.
  3. In the Account Type drop-down, select Operating Expense and name the account Bad Debt Expense.
  4. Click Save.

Step 2: Record a payment

To record a payment:

  1. On the left-side menu, select Sales & Payments Invoices.
  2. Select the invoice you need to write off.
  3. Find the exchange rate in the bottom right of the invoice and make a note of it.

  4. Click Save.

  5. On the invoice details page, select Record a payment manually.
  6. In the Payment method drop-down, choose the method of refund.
  7. In the Payment account drop-down, choose the Bad Debt Clearing account.
  8. Change the exchange rate to the rate from the invoice found in Step 3.
  9. Note the amount in your business currency. It should be the same as on the invoice.
  10. Click Submit.

Step 3: Create a transaction

You need to create an expense transaction to show the added payment as a bad debt write-off rather than income. To create an expense transaction:

  1. On the left-side menu, select Accounting > Transactions.
  2. Click Add expense.
  3. Enter a description and choose the same date as the payment you just recorded.
  4. In the Account drop-down, select the Bad Debt Clearing account.
  5. For the Amount, enter the same as shown on the invoice.
  6. In the Category drop-down, select the Bad Debt Expense account.

To check you completed this correctly, head to Reports > Account Transactions and filter for the dates of

  • The invoice balance in Accounts Receivable is zero.
  • The Sales and Bad Debt Expense accounts offset each other
  • There is no gain or loss on foreign exchange