How to record reduced value invoice?

Hi all

Can't afford the accountant at the moment and would appreciate a little advice.

Invoiced a client in July 2008 for services rendered as follows:-

€2,625.00 service
€551.25 VAT
________
€3,176.25 total

After trying for months to get payment - the client's bank wrote to us in March 2009 and said that all the company's debts would have to be written down otherwise they were not going to re-finance the company and if that happened, we might not get paid at all.

The company directors requested that the debt be written down to €2000, which the bank paid direct to us on 30th March 2009.

My question is how do I account for the 'lost' income - €1,176?

Thanks.

Just raise a credit not for the vat inclusive value of 1176 and you can then reduce your vat laibility as well in your returns.

Hi,

If the original sale was in the current accounting period the easiest way is probably to issue a credit note for the full invoice of €2625 plus VAT and reissue an invoice for €2000 VAT inclusive (€1652.89 plus VAT €347.11).

You will get relief for VAT in your next VAT return and the €1652 will be the amount included in your sales.

If the sale has been recorded in the previous accounting period Otherwise just issue a credit note for the difference (€972.11 plus VAT €204.14).

Thank you!