Discussion:Bad debt

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Discussion Forum Index --> Tax Questions --> Bad debt

TaxTalker (talk|edits) said:

8 January 2007
An S-Corp reporting on the accrual basis, enters into a construction contract with buyer and is not paid. The S-Corp began construction incurring expenses for materials & labor. Buyer's check bounced and funds are not recovered. Does the S-Corp report the contract price (including profit) as income, the materials & labor as expenses, and the difference (which would have been the profit) as a Bad Debt Expense?

Bottom Line (talk|edits) said:

8 January 2007
That is correct. I hope he's putting a mechanics lien on the job.

Michaelstar (talk|edits) said:

8 January 2007
As I see it, the only amount that is reported as a bad debt expense is the amount of the invoice already billed and not received. That may or may not be for the amount of the bounced check it the check was not for full payment of the o/s invoices. I would also guess that unless the project was completed, the entire amount of the contrat would not have been invoiced and therefore should not not be invoiced/written off as a bad debt.

If this was the cash basis entity (I know the question was based on accrual) - there would be no bad debt expense as the amount invoiced was never received or taken into taxable income.

Bottom Line (talk|edits) said:

8 January 2007
I agree with Michaelstar. I assumed the bounced check was for the amount that had been billed.

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