In 2012 my company sued another company and one of their owners in attempt to collect $32,000 in unpaid invoices from 2011. My company's accounting is cash method. When filing the 2011 Fed tax returns the $32,000 was not included as gross receipts/sales but the $30,000 cost of goods was included as material costs. Recently the owner's attorney contacted me to negotiate a settlement. I agreed to accept $15,000 to release the judgement. My question is how do record in QB? Show receiving a payment of $15K and issue a credit for the balance? Or show receiving the payment for $15K and write off the balance as bad debt? Does it really make a difference?
And how do I report on 2021 Fed return since I already claimed the COGS in 2011? My head is spinning because everything I've read says I can only report the amount I actually received, $15K, as gross receipts/sales and $0 for cost of goods and the credit memo or bad debt write off doesn't come into play anyway. Am I missing something?
Appreciate any input. Thank you in advance.
Brenda
