How to Write Off Accounts Payable from a Previous Year
Accounts payable represents money owed by a company to vendors. In accounting terms, the money owed represents liabilities. Many companies have multiple accounts payable sub-accounts. While the payment of liabilities owed often works quite well, companies may have a residual balance left in their general ledger. Residual balances are often the result of improper payments or incorrect posting by accountants. Companies can usually write these amounts off after conducting a basic due diligence process for each payables account.
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Instructions
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Contact the vendor linked to the accounts payable on the general ledger. Request a full statement of account for the previous 12 months.
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Reconcile the internal payables account to the vendor statement. Mark off all invoices paid in full by the company.
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Mark all differences with a highlighter between vendor invoices and payments made by the company.
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Review the highlighted differences to determine if payments may be necessary to the vendor. Mark all amounts with a short comment for writing off unidentified differences.
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Write up a journal entry to clear the account balances. Debit the accounts payable account and credit other income. In some cases, companies can credit the account debited from the original entry.
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Tips & Warnings
Always clarify with a licensed accountant how you should write off accounts payable balances. Different laws and accounting standards may apply to your business situation.
