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How do you write off revenue, but not a specific invoice, from a prior year?

What is the right way to account for the following situation: We sent our client an invoice several years ago (2009), which they paid. Then in March of 2010 we sent them a credit memo, but we voided the credit memo in June. I only started with this company last year so I can't tell you why they did what they did. Now this year we did more work for the same client and sent them the invoices. When checking to find out why they didn't pay these invoices, we were told it was because they applied the credit to what was owed. So now we have a project from 2009 that has long since been closed out that doesn't have any outstanding invoices and a current project with several outstanding invoices. Since the old project has been closed out we can't reopen it, at least not without a lot of trouble. Assuming the credit memo was valid and should have been issued on the old project, how do we book an entry so that we don't write off the new receivables, because we know that project should not be written off. If we have an allowance for bad debt account can we book it there?

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

The source of your problem is the creation and the subsequent voiding of the credit memo. The voiding of the credit memo was NOT communicated to them. From their perspective, they still had a receivable from you. Hence, the non payment of the current invoices and the subsequent application of their supposed receivable from you with the current invoices.

Your first move is to find out the legitimacy of first the creation of the credit memo and the subsequent voiding of it. Then you have to communicate/share your findings with your client. They may or may not agree with it but your subsequent actions hinge on first ironing things out with the client.

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