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Debit : Accounts Payable
Credit: Other Income
The cancellation of liability results in savings to the entity and should therefore be recognized as other income since the saving of cash outflows are not attained through the ordinary course of business operations.
It may be a case/ possibility that payment to the supplier may not have been allocated accordingly to the creditors sub-ledger and may be lying elsewhere (suspense/ unallocated funds account). Therefore, an investigation would need to be carried out, perhaps through scrutiny of the trial balance. Once the corresponding entry is discovered, the two may be net off via journal.
Supplier X (Dr) xxx
Other income A/C xxx
Why would you like to write off the balance?
The nature of the supplier account is that the balance is credit
You are asked to write off the balance. This means there is a difference between you and the supplier
The following must be reviewed:-
- Amount of invoices received from the supplier
- Payments to supplier
- Discounts granted by the supplier
After knowing the reason for the difference in account balances, you can identify the necessary treatment.
Debit - Bad debts Expense
Credit - To Supplier
