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Ask Dr. Fiona Chen Your Own Question
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 355
Experience:  Former IRS Revenue Agent
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I have gotten behind on a few payments to vendors and these

Customer Question

I have gotten behind on a few payments to vendors and these bills appear on my AP for 1-3 years old. Vendors have not reached out for payment on these debts for over 1-3 years. Do I write these off from AP? Should I still work to resolve payment when I can and continue to leave on my AP? Should I write off books either way and when I am able to send monies, still send with a letter? If vendor no longer chooses to recognize, should I?
Submitted: 1 month ago.
Category: Finance
Expert:  Dr. Fiona Chen replied 1 month ago.

Dear Customer,

There is accounting and business procedure to write off Accounts Receivable; but there is NO such procedure to so called "write off" Accounts Payable.

You need these numbers. First, you could have already taken the expenses and created business expenses and loss. You cannot "write them off". Also, if they disappear from your book record, if any of the vendors sends you a debt forgiveness, you have nothing to write against it. The vendor's debt forgiveness, Form 1099-C will cause you to have income and have to recognize as income without any loss to write off against it.

Never, never, never write off expenses, debt off your book. You need these numbers.

It is suggested that you find a professional bookkeeper and CPA to help you.

As to the debt themselves, unless you plan to file bankruptcy for yourself or your business, or to close down your business, of course, you should try to resolve the matter with the vendors.

Please feel free to follow up.

Regards,

Fiona

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

Customer: replied 1 month ago.
Understood. I may have used the wrong terminology with 'write 'off'. Ultimately, I am wondering if I should credit the AP item(s) to an income account if communication between both parties have stopped. Multiple years have gone by in not receiving a response to work out a plan. I wonder if I should start sending payment(s) with a note and see if they can checks OR simply credit the bill as income and move on.
Customer: replied 1 month ago.
Any additional insight you have would be appreciated. Thank you.
Expert:  Dr. Fiona Chen replied 1 month ago.

Dear Customer,

"I should start sending payment(s) with a note and see if they can checks" -- Yes. Call them and explain the payment to come. You can ask them to reconcile record with you to make sure you have in writing what happen to these accounts.

"OR simply credit the bill as income and move on" -- There is no place for you to move on to. There is no such accounting procedure. This is poor accounting. You had expenses before and did not pay. Now, it is somehow automatically become income? If you are thinking of this, just let these numbers stay on your book. Do nothing is better.

Please feel free to follow up.

Regards,

Fiona

"

Customer: replied 1 month ago.
Got it. Thank you, ***** ***** is exactly the advice I am looking for. Last question, if after I reach out and the vendor states 'we have written that off already and I don't expect payment' or I simply no longer hear back from them or do not see any checks clearing, is there a recommendation on how to proceed?
Customer: replied 1 month ago.
If they choose to forgive the debt, after discussing, and I receive no documentation other than a conversation stating so, or perhaps a letter verifying, what is the accounting steps for bookkeeping?
Expert:  Dr. Fiona Chen replied 1 month ago.

Dear Customer,

You may want to communicate with the vendors before just sending out a check.

When you have that type of vendors, who says 'we have written that off already and I don't expect payment', " If they choose to forgive the debt, after discussing," please give us their contact information. We will use them, too.

Negative numbers on the book is very valuable. I would not get rid of them.

There are two ways to deal with this Accounts Payable, one is against the Other Income account; the other is against the Capital Account, owner's equity. There is tax return consequence, as well. This could increase the taxable income for the year. If we are simply clear up the possible mistake on the book, open a sub account of "adjustment" under the owner's equity, to register this adjustment.

Balance sheet statement is very important. All numbers have their meanings. They cannot and should not just be "gotten rid off".

p.s. "Last question, if after I reach out and the vendor states 'we have written that off already and I don't expect payment' or I simply no longer hear back from them or do not see any checks clearing, is there a recommendation on how to proceed?" They possibly had too many customers not paying and went out of business. Please find a professional accountant to work for you.

Regards,

Fiona

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